[House Report 105-220]
[From the U.S. Government Printing Office]
105th Congress Report
1st Session HOUSE OF REPRESENTATIVES 105-220
_______________________________________________________________________
TAXPAYER RELIEF ACT OF 1997
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CONFERENCE REPORT
to accompany
H.R. 2014
July 30, 1997.--Ordered to be printed
105th Congress Report
1st Session HOUSE OF REPRESENTATIVES 105-220
_______________________________________________________________________
TAXPAYER RELIEF ACT OF 1997
----------
CONFERENCE REPORT
to accompany
H.R. 2014
July 30, 1997.--Ordered to be printed
----------
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1997
C O N T E N T S
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Page
I. CHILD AND DEPENDENT CARE TAX CREDIT; HEALTH CARE FOR CHILDREN. 330
A. Child Tax Credit (sec. 101 (a), (c), and (d) of the House
bill and sec. 101 of the Senate amendment)................. 330
B. Expand Definition of High-Risk Individuals With Respect to
Tax-Exempt State-Sponsored Organizations Providing Health
Coverage (sec. 101(b) of the House bill)................... 334
C. Indexing of the Dependent Care Credit; Phase Out for High-
Income Taxpayers (sec. 102 of the House bill).............. 335
D. Tax Credit for Employer Expenses for Child Care Facilities
(sec. 103 of the Senate amendment)......................... 336
E. Expansion of Coordinated Enforcement Efforts Between the
Internal Revenue Service and the Health and Human Services
Office of Child Support Enforcement (sec. 104 of the Senate
amendment)................................................. 337
F. Penalty-Free Withdrawals From IRAs for Adoption Expenses
(sec. 105 of the Senate amendment)......................... 338
II. EDUCATION TAX INCENTIVES..................................... 339
A. Tax Benefits Relating to Education Expenses............... 339
1. HOPE tax credit and Lifetime Learning tax credit for
higher education tuition expenses (sec. 201 of the
House bill)............................................ 339
2. Tax treatment of qualified State tuition programs and
education IRAs; exclusion for certain distributions
from education IRAs used to pay qualified higher
education expenses (secs. 202 (a), (b), and (d) and
211-212 of the House bill and secs. 211-213 of the
Senate amendment)...................................... 348
3. Phase out qualified tuition reduction exclusion (sec.
202(c) of the House bill).............................. 365
4. Deduction for student loan interest (sec. 202 of the
Senate amendment)...................................... 366
5. Penalty-free withdrawals from IRAs for higher
education expenses (sec. 203 of the House bill and sec.
203 of the Senate amendment)........................... 368
6. Tax credit for expenses for education which
supplements elementary and secondary education (sec.
204 of the House bill)................................. 369
7. Certain teacher education expenses not subject to 2-
percent floor on miscellaneous itemized deductions
(sec. 224 of the Senate amendment)..................... 370
B. Other Education-Related Tax Provisions.................... 371
1. Extension of exclusion for employer-provided
educational assistance (sec. 221 of the House bill and
sec. 221 of the Senate amendment)...................... 371
2. Modification of $150 million limit on qualified
501(c)(3) bonds other than hospital bonds (sec. 222 of
the House bill and sec. 222 of the Senate amendment)... 372
3. Enhanced deduction for corporate contributions of
computer technology and equipment (sec. 223 of the
House bill)............................................ 373
4. Expansion of arbitrage rebate exception for certain
bonds (sec. 223 of the Senate amendment)............... 374
5. Treatment of cancellation of certain student loans
(sec. 224 of the House bill and sec. 225 of the Senate
amendment)............................................. 375
6. Tax credit for holders of qualified zone academy bonds 376
III. SAVINGS AND INVESTMENT TAX INCENTIVES....................... 378
A. Individual Retirement Arrangements........................ 378
1. Increase deductible IRA phase-out range and modify
active participant rule (sec. 301 of the Senate
amendment)............................................. 378
2. Tax-free nondeductible IRAs (sec. 301 of the House
bill and sec. 302 of the Senate amendment)............. 379
3. Modifications to early withdrawal tax (sec. 301 of the
House bill and sec. 303 of the Senate amendment)....... 381
4. IRA investments in coins and bullion (sec. 304 of the
Senate amendment)...................................... 381
B. Capital Gains Provisions.................................. 382
1. Maximum rate of tax on net capital gains of
individuals (sec. 311 of the House bill and sec. 311 of
the Senate amendment).................................. 382
2. Small business stock (sec. 311 of the House bill and
secs. 312-313 of the Senate amendment)................. 383
3. Indexing of certain assets for purposes of determining
gain (sec. 312 of the House bill)...................... 385
4. Exclusion of gain from sale of principal residence
(sec. 313 of the House bill and sec. 314 of the Senate
amendment)............................................. 386
5. Corporate capital gains (sec. 321 of the House bill).. 387
IV. ALTERNATIVE MINIMUM TAX PROVISIONS........................... 389
A. Increase Exemption Amount Applicable to Individual
Alternative Minimum Tax (sec. 401 of the House bill and
sec. 102 of the Senate amendment).......................... 389
B. Repeal Alternative Minimum Tax for Small Businesses and
Repeal the Depreciation Adjustment (secs. 402-403 of the
House bill and secs. 55-56 of the Senate amendment)........ 390
C. Repeal AMT Installment Method Adjustment for Famers (sec.
404 of the House bill and sec. 732 of the Senate amendment) 391
V. ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS.......... 393
A. Estate and Gift Tax Provisions............................ 393
1. Increase in estate and gift tax unified credit (sec.
501(a) of the House bill and sec. 401(a) of the Senate
amendment)............................................. 393
2. Indexing of certain other estate and gift tax
provisions (sec. 501(b)-(e) of the House bill and sec.
401(b)-(e) of the Senate amendment).................... 394
3. Estate tax exclusion for qualified family-owned
businesses (sec. 402 of the Senate amendment).......... 395
4. Reduction in estate tax for certain land subject to
permanent conservation easement (sec. 403 of the Senate
amendment)............................................. 401
5. Installment payments of estate tax attributable to
closely held businesses (secs. 502-503 of the House
bill and (secs. 404-405 of the Senate amendment)....... 403
6. Estate tax recapture from cash leases of specially-
valued property (sec. 504 of the House bill and sec.
406 of the Senate amendment)........................... 405
7. Clarify eligibility for extension of time for payment
of estate tax (sec. 505 of the House bill)............. 406
8. Gifts may not be revalued for estate tax purposes
after expiration of statute of limitations (sec. 506 of
the House bill)........................................ 407
9. Repeal of throwback rules applicable to domestic
trusts (sec. 507 of the House bill).................... 408
10. Unified credit of decedent increased by unified
credit of spouse used on split gift included in
decedent's gross estate (sec. 508 of the House bill)... 410
11. Reformation of defective bequests to spouse of
decedent (sec. 509 of the House bill).................. 411
B. Generation-Skipping Tax Provisions........................ 412
1. Severing of trusts holding property having an
inclusion ratio of greater than zero (sec. 511 of the
House bill)............................................ 412
2. Modification of generation-skipping transfer tax for
transfers to individuals with deceased parents (sec.
512 of the House bill and sec. 407 of the Senate
amendment)............................................. 413
VI. EXTENSION OF CERTAIN EXPIRING TAX PROVISIONS................. 415
A. Research Tax Credit (sec. 601 of the House bill and sec.
501 of the Senate amendment)............................... 415
B. Contributions of Stock to Private Foundations (sec. 602 of
the House bill and sec. 502 of the Senate amendment)....... 419
C. Work Opportunity Tax Credit (sec. 603 of the House bill
and sec. 503 of the Senate amendment)...................... 421
D. Orphan Drug Tax Credit (sec. 604 of the House bill and
sec. 504 of the Senate amendment).......................... 425
VII. DISTRICT OF COLUMBIA TAX INCENTIVES (secs. 701-702 of the
House bill and sec. 601 of the Senate amendment)............... 426
VIII. WELFARE-TO-WORK TAX CREDIT (sec. 801 of the House bill).... 440
IX. MISCELLANEOUS PROVISIONS..................................... 442
A. Excise Tax Provisions..................................... 442
1. Repeal excise tax on diesel fuel used in recreational
motorboats (sec. 901 of the House bill and sec. 701 of
the Senate amendment).................................. 442
2. Continued application of tax on imported recycled
Halon-1211 (sec. 902 of the House bill)................ 442
3. Transfer of General Fund highway fuels tax revenues to
the Highway Trust Fund (sec. 704 of the Senate
amendment)............................................. 443
4. Tax certain alternative fuels based on energy
equivalency to gasoline (sec. 705 of the Senate
amendment)............................................. 444
5. Extend and modify tax benefits for ethanol (sec. 605
of the House bill and sec. 707 of the Senate amendment) 445
6. Treat certain gasoline ``chain retailers'' as
wholesale distributors under the gasoline excise tax
refunds rules (sec. 904 of the House bill)............. 445
7. Exemption of electric and other clean-fuel motor
vehicles from luxury automobile classification (sec.
905 of the House bill)................................. 446
8. Reduce rate of alcohol excise tax on certain hard
ciders (sec. 703 of the Senate amendment).............. 447
9. Study feasibility of moving collection point for
distilled spirits excise tax (sec. 706 of the Senate
amendment)............................................. 448
10. Codify Treasury Department regulations regulating
wine labels (sec. 708 of the Senate amendment)......... 449
11. Uniform rate of excise tax on vaccines (sec. 903 of
the House bill and sec. 844 of the Senate amendment)... 449
B. Disaster Relief Provisions................................ 451
1. Authority to postpone certain tax-related deadlines by
reason of Presidentially declared disaster (sec. 921 of
the House bill)........................................ 451
2. Use of certain appraisals to establish amount of
disaster loss (sec. 922 of the House bill)............. 451
3. Treatment of livestock sold on account of weather-
related conditions (sec. 923 of the House bill and sec.
721 of the Senate amendment)........................... 452
4. Mortgage bond financing for residences located in
Presidentially declared disaster areas (sec. 924 of the
House bill and sec. 723 of the Senate amendment)....... 453
5. Rules relating to denial of earned income credit on
basis of disqualified income (sec. 722 of the Senate
amendment)............................................. 454
6. Penalty-free withdrawals from IRAs for disaster-
related expenses (sec. 724 of the Senate amendment).... 454
7. Elimination of 10-percent floor for casualty losses
resulting from Presidentially declared disaster (sec.
725 of the Senate amendment)........................... 455
8. Requirement to abate interest by reason of
Presidentially declared disaster (sec. 726 of the
Senate amendment)...................................... 456
C. Provisions Relating to Employment Taxes................... 456
1. Employment tax status of distributors of bakery
products (sec. 931 of the House bill................... 456
2. Clarification of standard to be used in determining
tax status of retail securities brokers (sec. 932 of
the House bill and sec. 779 of the Senate amendment)... 457
3. Clarification of exemption from self-employment tax
for certain termination payments received by former
insurance salesmen (sec. 933 of the House bill)........ 457
4. Safe harbor for independent contractors (sec. 934 of
the House bill)........................................ 459
5. Combined employment tax reporting demonstration
project (sec. 769 of the Senate amendment)............. 460
D. Provisions Relating to Small Businesses................... 461
1. Delay imposition of penalties for failure to make
payments electronically through EFTPS (sec. 941 of the
House bill and sec. 731 of the Senate amendment)....... 461
2. Home office deduction: clarification of definition of
principal place of business (sec. 942 of the House
bill).................................................. 463
3. Increase deduction for health insurance costs of self-
employed individuals (sec. 733 of the Senate amendment) 465
E. Other Provisions.......................................... 466
1. Shrinkage estimates for inventory accounting (sec. 951
of the House bill and sec. 1013 of the Senate
amendment)............................................. 466
2. Treatment of workmen's compensation lability under
rules for certain personal injury liability assignments
(sec. 952 of the House bill)........................... 468
3. Tax-exempt status for certain state workmen's
compensation act companies (sec. 953 of the House bill
and sec. 761 of the Senate amendments)................. 469
4. Election for 1987 partnerships to continue exception
from treatment of publicly traded partnerships as
corporations (sec. 954 of the House bill and sec. 762
of the Senate amendment)............................... 471
5. Exclusion from UBIT for certain corporate sponsorship
payments (sec. 955 of the House bill and sec. 763 of
the Senate amendment).................................. 473
6. Timeshare associations (sec. 956 of the House bill and
sec. 764 of the Senate amendments)..................... 476
7. Deferral of gain on certain sales of farm product
refiners and processors (sec. 958 of the House bill)... 478
8. Exception from real estate reporting requirements for
sales of principal residences (sec. 959 of the House
bill and secs. 314(c) and 601(d) of the Senate
amendment)............................................. 479
9. Increased deduction for business meals while operating
under Department of Transportation hours of service
limitations (sec. 960 of the House bill and sec. 765 of
the Senate amendment).................................. 480
10. Deductibility of meals provided for the convenience
of the employer and provided by remote seafood
processors (secs. 765 and 778 of the Senate amendment). 481
11. Deduction of traveling expenses while working away
from home on qualified construction projects (sec. 775
of the Senate amendment)............................... 483
12. Provide above-the-line-deduction for certain business
expenses (sec. 766 of the Senate amendment)............ 484
13. Increase in standard mileage rate for purposes of
computing charitable deduction (sec. 767 of the Senate
amendment)............................................. 484
14. Expensing of environmental remediation costs
(``brownfields'') (sec. 768 of the Senate amendment)... 485
15. Treatment of consolidation of certain mutual savings
bank life insurance departments (sec. 962 of the House
bill).................................................. 488
16. Offset of past-due, legally enforceable State tax
obligations against Federal overpayments (sec. 963 of
the House bill)........................................ 490
17. Modify limits on depreciation of luxury automobiles
for certain clean-burning fuel and electric vehicles
(sec. 964 of the House bill)........................... 491
18. Survivor benefits of public safety officers killed in
the line of duty (sec. 965 of the House bill and sec.
784 of the Senate amendment)........................... 492
19. Temporary suspension of income limitations on
percentage depletion for production from marginal wells
(sec. 966 of the House bill and sec. 772 of the Senate
amendment)............................................. 493
20. Extend production credit for electricity produced
from wind and ``closed loop'' biomass (sec. 771 of the
Senate amendment)...................................... 494
21. Modification of advance refunding rules for certain
tax-exempt bonds issued by the Virgin Islands (sec. 957
of the House bill)..................................... 494
22. Qualified small-issue bonds (sec. 770 of the Senate
amendment)............................................. 495
23. Treatment of bonds issued by the Federal Home Loan
Bank Board under the Federal guarantee rules (sec. 774
of the Senate amendment)............................... 496
24. Current refundings of certain bonds issued by Indian
Tribal governments (sec. 789 of the Senate amendment).. 496
25. Purchasing of receivables by tax-exempt hospital
cooperative service organizations (sec. 773 of the
Senate amendment)...................................... 497
26. Charitable contribution deduction for certain
expenses incurred in support of Native Alaskan
subsistence whaling (sec. 776 of the Senate amendment). 498
27. Designation of additional empowerment zones;
modification of empowerment zone and enterprise
community criteria (sec. 777 of the Senate amendment).. 499
28. Conducting of certain qualified games of chance not
treated as unrelated trade or business (sec. 783 of the
Senate amendment)...................................... 505
29. Exclusion from income of certain severance payments
(sec. 788(a) of the Senate amendment).................. 507
30. Special rule for thrift institutions that became
large banks (sec. 790 of the Senate amendment)......... 507
31. Income averaging for farmers (sec. 792 of the Senate
amendment)............................................. 508
32. Intercity Passenger Rail Fund; elective carryback of
existing net operating losses of the National Railroad
Passenger Corporation (Amtrak) (sec. 702 of the Senate
amendment)............................................. 509
X. REVENUE-INCREASE PROVISIONS................................... 512
A. Financial Products........................................ 512
1. Require recognition of gain on certain appreciated
positions in personal property (sec. 1001(a) of the
House bill and sec. 801(a) of the Senate amendment).... 512
2. Election of mark-to-market for securities traders and
for traders and dealers in commodities (sec. 1001(b) of
the House bill and sec. 801(b) of the Senate amendment) 515
3. Limitation on exception for investment companies under
section 351 (sec. 1002 of the House bill and sec. 802
of the Senate amendment)............................... 516
4. Disallowance of interest on indebtedness allocable to
tax-exempt obligations (sec. 1003 of the House bill)... 517
5. Gains and losses from certain terminations with
respect to property (sec. 1004 of the House bill and
sec. 803 of the Senate amendment)...................... 520
6. Determination of original issue discount where pooled
debt obligations subject to acceleration (sec. 1005 of
the House bill)........................................ 522
7. Deny interest deduction on certain debt instruments
(sec. 1006 of the House bill).......................... 523
B. Corporate Organizations and Reorganizations............... 524
1. Require gain recognition for certain extraordinary
dividends (sec. 1011 of the House bill and sec. 811 of
the Senate amendment).................................. 524
2. Require gain recognition on certain distributions of
controlled corporation stock (sec. 1012 of the House
bill and sec. 812 of the Senate amendment)............. 527
3. Reform tax treatment of certain corporate stock
transfers (sec. 1013 of the House bill and sec. 813 of
the Senate amendment).................................. 537
4. Modify holding period for dividends-received deduction
(sec. 1014 of the House bill and sec. 814 of the Senate
amendment)............................................. 538
C. Other Corporate Provisions................................ 539
1. Registration of confidential corporate tax shelters
and substantial understatement penalty (sec. 1021 of
the House bill and sec. 821 of the Senate amendment)... 539
2. Treat certain preferred stock as ``boot'' (sec. 1022
of the House bill and sec. 822 of the Senate amendment) 543
D. Administrative Provisions................................. 545
1. Reporting of certain payments made to attorneys (sec.
1031 of the House bill)................................ 545
2. Information reporting on persons receiving contract
payments from certain Federal agencies (sec. 1032 of
the House bill and sec. 831 of the Senate amendment)... 547
3. Disclosure of tax return information for
administration of certain veterans programs (sec. 1033
of the House bill and sec. 832 of the Senate amendment) 548
4. Establish IRS continuous levy and improve debt
collection............................................. 549
A. Continuous levy (sec. 1034 of the House bill and
sec. 834 of the Senate amendment).................. 549
B. Modifications of levy exemptions (secs. 1035-1036
of the House bill and secs. 835-836 of the Senate
amendment)......................................... 550
5. Consistency rule for beneficiaries of trusts and
estates (sec. 1037 of the House bill and sec. 833 of
the Senate amendment).................................. 551
E. Excise Tax Provisions..................................... 551
1. Extension and modification of Airport and Airway Trust
Fund excise taxes (sec. 1041 of the House bill and sec.
841 of the Senate amendment)........................... 551
2. Extend diesel fuel excise tax rules to kerosene (sec.
1042 of the House bill)................................ 556
3. Reinstate Leaking Underground Storage Tank Trust Fund
excise tax (sec. 1043 of the House bill and sec. 842 of
the Senate amendment).................................. 557
4. Application of communications excise tax to prepaid
telephone cards (sec. 1044 of the House bill and sec.
843 of the Senate amendment)........................... 557
5. Modify treatment of tires under the heavy vehicle
retail excise tax on trucks (sec. 1402 of the House
bill and sec. 845 of the Senate amendment)............. 559
6. Increase tobacco excise taxes (sec. 846 of the Senate
amendment)............................................. 560
F. Provisions Relating to Tax-Exempt Organizations........... 561
1. Extend UBIT rules to second-tier subsidiaries and
amend control test (sec. 1051 of the House bill and
sec. 851 of the Senate amendment)...................... 561
2. Limitation on increase in basis of property resulting
from sale by tax-exempt entity to related person (sec.
1052 of the House bill and sec. 852 of the Senate
amendment)............................................. 563
3. Reporting and proxy tax requirements for political and
lobbying expenditures of certain tax-exempt
organizations (sec. 1053 of the House bill)............ 564
4. Repeal grandfather rule with respect to pension
business of certain insurers (sec. 1054 of the House
bill and sec. 853 of the Senate amendment)............. 565
G. Foreign Provisions........................................ 567
1. Inclusion of income from notional principal contracts
and stock lending transactions under Subpart F (sec.
1171 of the House bill and sec. 861 of the Senate
amendment)............................................. 567
2. Restrict like-kind exchange rules for certain personal
property (sec 1172 of the House bill and sec. 862 of
the Senate amendment).................................. 568
3. Impose holding period requirement for claiming foreign
tax credits with respect to dividends (sec. 1173 of the
House bill and sec. 863 of the Senate amendment)....... 569
4. Penalties for failure to file disclosure of exemption
for income from the international operation of ships or
aircraft by foreign persons (sec. 1174 of the House
bill).................................................. 570
5. Limitation on treaty benefits for payments to hybrid
entities (sec. 1175 of the House bill and sec. 742 of
the Senate amendment).................................. 572
6. Interest on underpayments that are reduced by foreign
tax credit carrybacks (sec. 1176 of the House bill and
sec. 865 of the Senate amendment)...................... 575
7. Determination of period of limitations relating to
foreign tax credits (sec. 1177 of the House bill and
sec. 866 of the Senate amendment)...................... 576
8. Treatment of income from certain sales of inventory as
U.S. source (sec. 864 of the Senate amendment)......... 577
9. Modify foreign tax credit carryover rules (sec. 867 of
the Senate amendment).................................. 578
10. Repeal special exception to foreign tax credit
limitation for alternative minimum tax purposes (sec.
868 of the Senate amendment)........................... 578
H. Pension and Employee Benefit Provisions................... 579
1. Cashout of certain accrued benefits (sec. 917 of the
House bill and sec. 879 of the Senate amendment)....... 579
2. Election to receive taxable cash compensation in lieu
of nontaxable parking benefits (sec. 880 of the Senate
amendment)............................................. 580
3. Repeal of excess distribution and excess retirement
accumulation taxes (sec. 882 of the Senate amendment).. 581
4. Tax on prohibited transactions (sec. 884 of the Senate
amendment)............................................. 581
5. Basis recovery rules (sec. 885 of the Senate
amendment)............................................. 582
I. Other Revenue-Increase Provisions......................... 583
1. Phase out suspense accounts for certain large farm
corporations (sec. 1061 of the House bill and sec. 871
of the Senate amendment)............................... 583
2. Modify net operating loss carryback and carryforward
rules (sec. 1062 of the House bill and sec. 872 of the
Senate amendment)...................................... 584
3. Expand the limitations on deductibility of interest
and premiums with respect to life insurance, endowment,
and annuity contracts (sec. 1063 of the House bill and
sec. 873 of the Senate amendment)...................... 585
4. Allocation of basis of properties distributed to a
partner by a partnership (sec. 1064 of the House bill
and sec. 874 of the Senate amendment).................. 591
5. Treatment of inventory items of a partnership (sec.
1065 of the House bill and sec. 875 of the Senate
amendment)............................................. 593
6. Treatment of appreciated property contributed to a
partnership (sec. 1066 of the House bill).............. 594
7. Earned income credit compliance provisions (sec. 1067
of the House bill and sec. 5851 of the Senate amendment
to H.R. 2015).......................................... 596
a. Deny EIC eligibility for prior acts of
recklessness or fraud.............................. 597
b. Recertification required when taxpayer found to be
ineligible for EIC in past......................... 598
c. Due diligence requirements for paid preparers..... 599
d. Modify the definition of AGI used to phase out the
EIC................................................ 600
8. Eligibility for income forecast method (sec. 1068 of
the House bill and sec. 876 of the Senate amendment)... 601
9. Require taxpayers to include rental value of residence
in income without regard to period of rental (sec. 1069
of the House bill)..................................... 602
10. Modify the exception to the related-party rule of
section 1033 for individuals to only provide an
exception for de minimis amounts (sec. 1070 of the
House bill and sec. 877 of the Senate amendment)....... 603
11. Repeal of exception for certain sales by
manufacturers to dealers (sec. 1071 of the House bill
and sec. 878 of the Senate amendment).................. 603
12. Extension of Federal unemployment surtax (sec. 881 of
the Senate amendment).................................. 604
13. Treatment of charitable remainder trusts (sec. 883 of
the Senate amendment).................................. 605
14. Modify general business credit carryback and
carryforward rules (sec. 788(b) of the Senate
amendment)............................................. 608
15. Using Federal case registry of child support orders
for tax enforcement purposes........................... 609
16. Expanded SSA records for tax enforcement............. 609
17. Treatment of amounts received under the work
requirements of the Personal Responsibility and Work
Opportunity Act of 1996................................ 610
XI. FOREIGN TAX PROVISIONS....................................... 612
A. General Provisions........................................ 612
1. Simplify foreign tax credit limitation for individuals
(sec. 1103 of the House bill and sec. 901 of the Senate
amendment)............................................. 612
2. Simplify translation of foreign taxes (sec. 1104 of
the House bill and sec. 902 of the Senate amendment)... 613
3. Election to use simplified foreign tax credit
limitation for alternative minimum tax purposes (sec.
1105 of the House bill and sec. 903 of the Senate
amendment)............................................. 615
4. Simplify treatment of personal transactions in foreign
currency (sec. 1106 of the House bill and sec. 904 of
the Senate amendment).................................. 616
5. Simplify foreign tax credit limitation for dividends
from 10/50 companies (sec. 1107 of the House bill)..... 617
B. General Provisions Affecting Treatment of Controlled
Foreign Corporations (secs. 1111-1113 of the House bill and
secs. 911-913 of the Senate amendment)..................... 618
C. Modification of Passive Foreign Investment Company
Provisions to Eliminate Overlap With Subpart F, to Allow
Mark-to-Market Election, and to Require Measurement Based
on Value for PFIC Asset Test (secs. 1121-1123 of the House
bill and secs. 751-753 of the Senate amendment)............ 623
D. Simplify Formation and Operation of International Joint
Ventures (secs. 1131, 1141-1145, and 1151 of the House bill
and secs. 921, 931-935, and 941 of the Senate amendment)... 628
E. Modification of Reporting Threshold for Stock Ownership of
a Foreign Corporation (sec. 1146 of the House bill and sec.
936 of the Senate amendment)............................... 632
F. Other Foreign Simplification Provisions................... 633
1. Transition rules for certain trusts (sec. 1161 of the
House bill and sec. 951 of the Senate amendment)....... 633
2. Simplify stock and securities trading safe harbor
(sec. 1162 of the House bill and sec. 952 of the Senate
amendment)............................................. 633
3. Clarification of determination of foreign taxes deemed
paid (sec. 1178(a) of the House bill and sec. 953(a) of
the Senate amendment).................................. 633
4. Clarification of foreign tax credit limitation for
financial services income (sec. 1178(b) of the House
bill and sec. 953(b) of the Senate amendment).......... 635
G. Other Foreign Provisions.................................. 636
1. Eligibility of licenses of computer software for
foreign sales corporation benefits (sec. 1101 of the
House bill and sec. 741 of the Senate amendment)....... 636
2. Increase dollar limitation on section 911 exclusion
(sec. 1102 of the House bill).......................... 637
3. Treatment of certain securities positions under the
subpart F investment in U.S. property rules (sec. 743
of the Senate amendment)............................... 638
4. Exception from foreign personal holding company income
under subpart F for active financing income (sec. 744
of the Senate amendment)............................... 639
5. Treat service income of nonresident alien individuals
earned on foreign ships as foreign source income and
disregard the U.S. presence of such individuals (sec.
745 of the Senate amendment)........................... 645
XII. SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND
BUSINESSES..................................................... 647
A. Provisions Relating to Individuals........................ 647
1. Modifications to standard deduction of dependents; AMT
treatment of certain minor children (sec. 1201 of the
House bill and sec. 1001 of the Senate amendment)...... 647
2. Increase de minimis threshold for estimated tax to
$1,000 for individuals (sec. 1202 of the House bill and
sec. 1002 of the Senate amendment)..................... 648
3. Optional methods for computing SECA tax combined (sec.
1203 of the House bill)................................ 649
4. Treatment of certain reimbursed expenses of rural
letter carrier's vehicles (sec. 1204 of the House bill
and sec. 1003 of the Senate amendment)................. 650
5. Travel expenses of Federal employees participating in
a Federal criminal investigation (sec. 1205 of the
House bill and sec. 1004 of the Senate amendment)...... 651
6. Payment of taxes by commercially acceptable means
(sec. 1206 of the House bill).......................... 652
B. Provisions Relating to Businesses Generally............... 655
1. Modifications to look-back method for long-term
contracts (sec. 1211 of the House bill and sec. 1011 of
the Senate amendment).................................. 655
2. Minimum tax treatment of certain property and casualty
insurance companies (sec. 1212 of the House bill and
sec. 1012 of the Senate amendment)..................... 657
3. Treatment of construction allowances provided to
lessees (sec. 961 of the House bill and sec. 1014 of
the Senate amendment).................................. 657
C. Partnership Simplification Provisions..................... 659
1. General provisions.................................... 659
a. Simplified flow-through for electing large
partnerships (sec. 1221 of the House bill and sec.
1021 of the Senate amendment)...................... 659
b. Simplified audit procedures for electing large
partnerships (sec. 1222 of the House bill and sec.
1022 of the Senate amendment)...................... 670
c. Due date for furnishing information to partners of
electing large partnerships (sec. 1223 of the House
bill and sec. 1023 of the Senate amendment)........ 674
d. Partnership returns required on magnetic media
(sec. 1224 of the House bill and sec. 1024 of the
Senate amendment).................................. 675
e. Treatment of partnership items of individual
retirement arrangements (sec. 1225 of the House
bill and sec. 1025 of the Senate amendment)........ 676
2. Other partnership audit rules......................... 677
a. Treatment of partnership items in deficiency
proceedings (sec. 1231 of the House bill and sec.
1031 of the Senate amendment)...................... 677
b. Partnership return to be determinative of audit
procedures to be followed (sec. 1232 of the House
bill and sec. 1032 of the Senate amendment)........ 679
c. Provisions relating to statute of limitations
(sec. 1233 of the House bill and sec. 1033 of the
Senate amendment).................................. 679
d. Expansion of small partnership exception (sec.
1234 of the House bill and sec. 1034 of the Senate
amendment)......................................... 682
e. Exclusion of partial settlements from 1-year
limitation on assessment (sec. 1235 of the House
bill and sec. 1035 of the Senate amendment)........ 682
f. Extension of time for filing a request for
administrative adjustment (sec. 1236 of the House
bill and sec. 1036 of the Senate amendment)........ 683
g. Availability of innocent spouse relief in context
of partnership proceedings (sec. 1237 of the House
bill and sec. 1037 of the Senate amendment)........ 684
h. Determination of penalties at partnership level
(sec. 1238 of the House bill and sec. 1038 of the
Senate amendment).................................. 685
i. Provisions relating to Tax Court jurisdiction
(sec. 1239 of the House bill and sec. 1039 of the
Senate amendment).................................. 685
j. Treatment of premature petitions filed by notice
partners or 5-percent groups (sec. 1240 of the
House bill and sec. 1040 of the Senate amendment).. 686
k. Bonds in case of appeals from certain proceedings
(sec. 1241 of the House bill and sec. 1041 of the
Senate amendment).................................. 686
l. Suspension of interest where delay in
computational adjustment resulting from certain
settlements (sec. 1242 of the House bill and sec.
1042 of the Senate amendment)...................... 687
m. Special rules for administrative adjustment
requests with respect to bad debts or worthless
securities (sec. 1243 of the House bill and sec.
1043 of the Senate amendment)...................... 688
3. Closing of partnership taxable year with respect to
deceased partner (sec. 1246 of the House bill and sec.
1046 of the Senate amendment).......................... 688
D. Modifications of Rules for Real Estate Investment Trusts
(secs. 1251-1263 of the House bill and secs. 1051-1063 of
the Senate amendment)...................................... 689
E. Repeal the ``Short-Short'' Test for Regulated Investment
Companies (sec. 1271 of the House bill and sec. 1071 of the
Senate amendment).......................................... 699
F. Taxpayer Protections...................................... 700
1. Provide reasonable cause exception for additional
penalties (sec. 1281 of the House bill and sec. 1081 of
the Senate amendment).................................. 700
2. Clarification of period for filing claims for refunds
(sec. 1282 of the House bill and sec. 1082 of the
Senate amendment)...................................... 700
3. Repeal of authority to disclose whether a prospective
juror has been audited (sec. 1283 of the House bill and
sec. 1083 of the Senate amendment)..................... 701
4. Clarify statute of limitations for items from pass-
through entities (sec. 1284 of the House bill and sec.
1084 of the Senate amendment).......................... 702
5. Awarding of administrative costs and attorneys fees
(sec. 1285 of the House bill).......................... 703
6. Prohibition on browsing (secs. 1286-1287 of the House
bill and secs. 1085-1086 of the Senate amendment)...... 704
XIII. ESTATE, GIFT, AND TRUST SIMPLIFICATION PROVISIONS.......... 706
1. Eliminate gift tax filing requirements for gifts to
charities (sec. 1301 of the House bill and secs. 1101
of the Senate amendment)............................... 706
2. Clarification of waiver of certain rights of recovery
(sec. 1302 of the House bill and sec. 1102 of the
Senate amendment)...................................... 707
3. Transitional rule under section 2056A (sec. 1303 of
the House bill and sec. 1103 of the Senate amendment).. 707
4. Clarifications relating to disclaimers (sec. 1304 of
the House bill)........................................ 708
5. Amend ``5 or 5 power'' (sec. 1305 of the House bill).. 709
6. Treatment of estate tax purposes of short-term
obligations held by nonresident aliens (sec. 1306 of
the House bill and sec. 1104 of the Senate amendment).. 710
7. Certain revocable trusts treated as part of estate
(sec. 1307 of the House bill).......................... 711
8. Distributions during first 65 days of taxable year of
estate (sec. 1308 of the House bill and sec. 1105 of
the Senate amendment).................................. 712
9. Separate share rules available to estates (sec. 1309
of the House bill and sec. 1106 of the Senate
amendment)............................................. 712
10. Executor of estate and beneficiaries treated as
related persons for disallowance of losses (sec. 1310
of the House bill and sec. 1107 of the Senate
amendment)............................................. 714
11. Limitation on taxable year of estates (sec. 1311 of
the House bill)........................................ 714
12. Simplified taxation of earnings of pre-need funeral
trusts (sec. 1312 of the House bill and sec. 1108 of
the Senate amendment).................................. 715
13. Adjustments for gifts within 3 years of decedent's
death (sec. 1313 of the House bill and sec. 1109 of the
Senate amendment....................................... 717
14. Clarify relationship between community property
rights and retirement benefits (sec. 1314 of the House
bill and sec. 1110 of the Senate amendment)............ 717
15. Treatment under qualified domestic trust rules of
forms of ownership which are not trusts (sec. 1315 of
the House bill and sec. 1111 of the Senate amendment).. 719
16. Opportunity to correct certain failures under section
2032A (sec. 1316 of the House bill and sec. 1112 of the
Senate amendment)...................................... 719
17. Authority to waive requirement of U.S. trustee for
qualified domestic trusts (sec. 1317 of the House bill
and sec. 1113 of the Senate amendment)................. 720
XIV. EXCISE TAX AND OTHER SIMPLIFICATION PROVISIONS.............. 722
A. Excise Tax Simplification Provisions...................... 722
1. Increase de minimis limit for after-market
alternations subject to heavy truck and luxury
automobile excise taxes (sec. 1401 of the House bill
and sec. 1201 of the Senate amendment)................. 722
2. Simplification of excise taxes on distilled spirits,
wine, and beer (secs. 1411-1422 of the House bill and
secs. 1211-1222 of the Senate amendment)............... 723
3. Authority for Internal Revenue Service to grant
exemptions from excise tax registration requirements
(sec. 1431 of the House bill and sec. 1231 of the
Senate amendment)...................................... 725
4. Repeal of expired excise tax provisions (sec. 1432 of
the House bill and sec. 1232 of the Senate amendment).. 725
5. Modifications to the excise tax on arrows (sec. 1233
of the Senate amendment)............................... 726
6. Modifications to heavy highway vehicle retail excise
tax (sec. 1234 of the Senate amendment)................ 726
7. Treatment of skydiving flights as noncommercial
aviation (sec. 1235 of the Senate amendment)........... 727
8. Eliminate double taxation of certain aviation fuels
sold to producers by ``fixed base operators'' (sec.
1236 of the Senate amendment).......................... 728
B. Tax-Exempt Bond Provisions................................ 728
1. Repeal of $100,000 limitation on unspent proceeds
under 1-year exception from rebate (sec. 1441 of the
House bill and sec. 1241 of the Senate amendment)...... 729
2. Exception from rebate for earnings on bona fide debt
service fund under construction bond rules (sec. 1442
of the House bill and sec. 1242 of the Senate
amendment)............................................. 730
3. Repeal of debt service-based limitation on investment
in certain nonpurpose investments (sec. 1443 of the
House bill and sec. 1243 of the Senate amendment)...... 730
4. Repeal of expired provisions relating to student loan
bonds (sec. 1444 of the House bill and sec. 1244 of the
Senate amendment)...................................... 731
C. Tax Court Procedures...................................... 732
1. Overpayment determinations of Tax Court (sec. 1451 of
the House bill and sec. 1251 of the Senate amendment).. 732
2. Redetermination of interest pursuant to motion (sec.
1452 of the House bill and sec. 1252 of the Senate
amendment)............................................. 732
3. Application of net worth requirement for awards of
litigation costs (sec. 1453 of the House bill and sec.
1253 of the Senate amendment).......................... 733
4. Tax Court jurisdiction for determination of employment
status (sec. 1454 of the House bill and sec. 1254 of
the Senate amendment).................................. 734
D. Other Provisions.......................................... 735
1. Due date for first quarter estimated tax payments by
private foundations (sec. 1461 of the House bill and
sec. 1261 of the Senate amendment)..................... 735
2. Withholding of Commonwealth income taxes from wages of
Federal employees (sec. 1462 of the House bill and sec.
1262 of the Senate amendment).......................... 735
3. Certain notices disregarded under provision increasing
interest rate on large corporate underpayments (sec.
1463 of the House bill and sec. 1263 of the Senate
amendment)............................................. 736
XV. PENSION AND EMPLOYEE BENEFIT PROVISIONS...................... 738
A. Miscellaneous Provisions Relating to Pensions and Other
Benefits................................................... 738
1. Cash or deferred arrangements for irrigation and
drainage entities (sec. 911 of the House bill)......... 738
2. Permanent moratorium on application of
nondiscrimination rules to State and local governmental
plans (sec. 912 of the House bill and sec. 1308 of the
Senate amendment)...................................... 738
3. Treatment of certain disability payments to public
safety employees (sec. 913 of the House bill and sec.
785 of the Senate amendment)........................... 740
4. Portability of permissive service credit under
governmental pension plans (sec. 914 of the House bill) 740
5. Gratuitous transfers for the benefit of employees
(sec. 915 of the House bill)........................... 742
6. Treatment of certain transportation on noncommercially
operated aircraft as a fringe benefit (sec. 916 of the
House bill)............................................ 743
7. Clarification of certain rules relating to ESOPs of S
corporations (sec. 918 of the House bill and sec. 1309
of the Senate amendment)............................... 744
8. Repeal application of UBIT to ESOPs of S corporations
(sec. 716 of the Senate amendment)..................... 745
9. Treatment of multiemployer plans under section 415
(sec. 711 of the Senate amendment)..................... 746
10. Modification of partial termination rules (sec. 712
of the House amendment)................................ 746
11. Increase in full funding limit (sec. 713 of the
Senate amendment)...................................... 747
12. Spousal consent required for distributions from
section 401(k) plans (sec. 714 of the Senate amendment) 748
13. Contributions on behalf of a minister to a church
plan (sec. 715 of the Senate amendment)................ 749
14. Exclusion of ministers from discrimination testing of
certain non-church retirement plans (sec. 715 of the
Senate amendment)...................................... 749
15. Diversification in section 401(k) plan investments
(sec. 717 of the Senate amendments).................... 750
16. Removal of dollar limitation on benefit payments from
a defined benefit plan for police and fire employees
(sec. 786 of the Senate amendment)..................... 751
17. Church plan exception to prohibition on
discrimination against individuals based on health
status................................................. 752
18. Newborns' and mothers' health protection, mental
health parity.......................................... 753
B. Pension Simplification Provisions......................... 754
1. Matching contributions of self-employed individuals
not treated as elective deferrals (sec. 1301 of the
Senate amendment)...................................... 754
2. Contributions to IRAs through payroll deductions (sec.
1302 of the Senate amendment).......................... 755
3. Plans not disqualified merely by accepting rollover
contributions (sec. 1303 of the Senate amendment)...... 756
4. Modification of prohibition on assignment or
alienation (sec. 1304 of the Senate amendment)......... 756
5. Elimination of paperwork burdens on plans (sec. 1305
of the Senate amendment)............................... 757
6. Modification of section 403(b) exclusion allowance to
conform to section 415 modifications (sec. 1306 of the
Senate amendment)...................................... 758
7. New technologies in retirement plans (sec. 1307 of the
Senate amendment)...................................... 759
8. Modification of 10-percent tax on nondeductible
contributions (sec. 1310 of the Senate amendment)...... 760
9. Modify funding requirements for certain plans (sec.
1311 of the Senate amendment).......................... 760
10. Date for adoption of plan amendments................. 761
XVI. SENSE OF THE SENATE RESOLUTIONS............................. 763
A. Sense of the Senate Regarding Reform of the Internal
Revenue Code of 1986 (sec. 780 of the Senate amendment).... 763
B. Sense of the Senate Regarding Tax Treatment of Stock
options (sec. 781 of the Senate amendment)................. 763
C. Sense of the Senate Regarding Estate Taxes (sec. 782 of
the Senate amendments)..................................... 764
D. Sense of the Senate Regarding Who Should Benefit From Tax
Cuts (sec. 791 of the Senate amendment).................... 764
E. Sense of the Senate Regarding Self-Employment Taxes of
Limited Partners (sec. 734 of the Senate amendment)........ 765
XVII. TECHNICAL CORRECTIONS PROVISIONS........................... 766
XVIII. OTHER TAX PROVISION....................................... 768
A. Estimated Tax Requirements of Individuals for 1997 and
1998 (sec. 311(d) of the House bill)....................... 768
XIX. TRADE PROVISIONS............................................ 769
A. Extension of Duty-Free Treatment Under the Generalized
System of Preferences (sec. 971 of the House bill)......... 769
B. Temporary Suspension of Vessel Repair Duty (sec. 972 of
the House bill)............................................ 769
C. United States-Caribbean Basin Trade Partnership Act (secs.
981-988 of the House bill)................................. 770
XX. LIMITED TAX BENEFITS SUBJECT TO THE LINE ITEM VETO ACT....... 771
105th Congress Report
1st Session HOUSE OF REPRESENTATIVES 105-220
_______________________________________________________________________
TAXPAYER RELIEF ACT OF 1997
_______
July 30, 1997.--Ordered to be printed
_______________________________________________________________________
Mr. Archer, from the committee of conference, submitted the following
CONFERENCE REPORT
[To accompany H.R. 2014]
The committee of conference on the disagreeing votes of
the two Houses on the amendment of the Senate to the bill (H.R.
2014) to provide for reconciliation pursuant to subsections
(b)(2) and (d) of section 105 of the concurrent resolution on
the budget for fiscal year 1998, having met, after full and
free conference, have agreed to recommend and do recommend to
their respective Houses as follows:
That the House recede from its disagreement to the
amendment of the Senate and agree to the same with an amendment
as follows:
In lieu of the matter proposed to be inserted by the
Senate amendment, insert the following:
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Taxpayer
Relief Act of 1997''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a section
or other provision, the reference shall be considered to be
made to a section or other provision of the Internal Revenue
Code of 1986.
(c) Section 15 Not To Apply.--No amendment made by this Act
shall be treated as a change in a rate of tax for purposes of
section 15 of the Internal Revenue Code of 1986.
(d) Waiver of Estimated Tax Penalties.--No addition to tax
shall be made under section 6654 or 6655 of the Internal
Revenue Code of 1986 for any period before January 1, 1998, for
any payment the due date of which is before January 16, 1998,
with respect to any underpayment attributable to such period to
the extent such underpayment was created or increased by any
provision of this Act.
(e) Table of Contents.--The table of contents for this Act
is as follows:
Sec. 1. Short title; etc.
TITLE I--CHILD TAX CREDIT
Sec. 101. Child tax credit.
TITLE II--EDUCATION INCENTIVES
Subtitle A--Tax Benefits Relating to Education Expenses
Sec. 201. Hope and lifetime learning credits.
Sec. 202. Deduction for interest on education loans.
Sec. 203. Penalty-free withdrawals from individual retirement plans for
higher education expenses.
Subtitle B--Expanded Education Investment Savings Opportunities
Part I--Qualified Tuition Programs
Sec. 211. Modifications of qualified State tuition programs.
Part II--Education Individual Retirement Accounts
Sec. 213. Education individual retirement accounts.
Subtitle C--Other Education Initiatives
Sec. 221. Extension of exclusion for employer-provided educational
assistance.
Sec. 222. Repeal of limitation on qualified 501(c)(3) bonds other than
hospital bonds.
Sec. 223. Increase in arbitrage rebate exception for governmental bonds
used to finance education facilities.
Sec. 224. Contributions of computer technology and equipment for
elementary or secondary school purposes.
Sec. 225. Treatment of cancellation of certain student loans.
Sec. 226. Incentives for education zones.
TITLE III--SAVINGS AND INVESTMENT INCENTIVES
Subtitle A--Retirement Savings
Sec. 301. Restoration of IRA deduction for certain taxpayers.
Sec. 302. Establishment of nondeductible tax-free individual retirement
accounts.
Sec. 303. Distributions from certain plans may be used without penalty
to purchase first homes.
Sec. 304. Certain bullion not treated as collectibles.
Subtitle B--Capital Gains
Sec. 311. 20 percent maximum capital gains rate for individuals.
Sec. 312. Exemption from tax for gain on sale of principal residence.
Sec. 313. Rollover of gain from sale of qualified stock.
Sec. 314. Amount of net capital gain taken into account in computing
alternative tax on capital gains for corporations not to
exceed taxable income of the corporation.
TITLE IV--ALTERNATIVE MINIMUM TAX REFORM
Sec. 401. Exemption from alternative minimum tax for small corporations.
Sec. 402. Repeal of separate depreciation lives for minimum tax
purposes.
Sec. 403. Minimum tax not to apply to farmers' installment sales.
TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS
Subtitle A--Estate and Gift Tax Provisions
Sec. 501. Cost-of-living adjustments relating to estate and gift tax
provisions.
Sec. 502. Family-owned business exclusion.
Sec. 503. Modifications to rate of interest on portion of estate tax
extended under section 6166.
Sec. 504. Extension of treatment of certain rents under section 2032A to
lineal descendants.
Sec. 505. Clarification of judicial review of eligibility for extension
of time for payment of estate tax.
Sec. 506. Gifts may not be revalued for estate tax purposes after
expiration of statute of limitations.
Sec. 507. Repeal of throwback rules applicable to certain domestic
trusts.
Sec. 508. Treatment of land subject to a qualified conservation
easement.
Subtitle B--Generation-Skipping Tax Provision
Sec. 511. Expansion of exception from generation-skipping transfer tax
for transfers to individuals with deceased parents.
TITLE VI--EXTENSIONS
Sec. 601. Research tax credit.
Sec. 602. Contributions of stock to private foundations.
Sec. 603. Work opportunity tax credit.
Sec. 604. Orphan drug tax credit.
TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA
Sec. 701. Tax incentives for revitalization of the District of Columbia.
TITLE VIII--WELFARE-TO-WORK INCENTIVES
Sec. 801. Incentives for employing long-term family assistance
recipients.
TITLE IX--MISCELLANEOUS PROVISIONS
Subtitle A--Provisions Relating to Excise Taxes
Sec. 901. General revenue portion of highway motor fuels taxes deposited
into Highway Trust Fund.
Sec. 902. Repeal of tax on diesel fuel used in recreational boats.
Sec. 903. Continued application of tax on imported recycled Halon-1211.
Sec. 904. Uniform rate of tax on vaccines.
Sec. 905. Operators of multiple gasoline retail outlets treated as
wholesale distributor for refund purposes.
Sec. 906. Exemption of electric and other clean-fuel motor vehicles from
luxury automobile classification.
Sec. 907. Rate of tax on certain special fuels determined on basis of
BTU equivalency with gasoline.
Sec. 908. Modification of tax treatment of hard cider.
Sec. 909. Study of feasibility of moving collection point for distilled
spirits excise tax.
Sec. 910. Clarification of authority to use semi-generic designations on
wine labels.
Subtitle B--Revisions Relating to Disasters
Sec. 911. Authority to postpone certain tax-related deadlines by reason
of presidentially declared disaster.
Sec. 912. Use of certain appraisals to establish amount of disaster
loss.
Sec. 913. Treatment of livestock sold on account of weather-related
conditions.
Sec. 914. Mortgage financing for residences located in disaster areas.
Sec. 915. Abatement of interest on underpayments by taxpayers in
presidentially declared disaster areas.
Subtitle C--Provisions Relating to Employment Taxes
Sec. 921. Clarification of standard to be used in determining employment
tax status of securities brokers.
Sec. 922. Clarification of exemption from self-employment tax for
certain termination payments received by former insurance
salesmen.
Subtitle D--Provisions Relating to Small Businesses
Sec. 931. Waiver of penalty through June 30, 1998, on small businesses
failing to make electronic fund transfers of taxes.
Sec. 932. Clarification of treatment of home office use for
administrative and management activities.
Sec. 933. Averaging of farm income over 3 years.
Sec. 934. Increase in deduction for health insurance costs of self-
employed individuals.
Sec. 935. Moratorium on certain regulations.
Subtitle E--Brownfields
Sec. 941. Expensing of environmental remediation costs.
Subtitle F--Empowerment Zones, Enterprise Communities, Brownfields, and
Community Development Financial Institutions
Chapter 1--Additional Empowerment Zones
Sec. 951. Additional empowerment zones.
Chapter 2--New Empowerment Zones
Sec. 952. Designation of new empowerment zones.
Sec. 953. Volume cap not to apply to enterprise zone facility bonds with
respect to new empowerment zones.
Sec. 954. Modification to eligibility criteria for designation of future
enterprise zones in Alaska or Hawaii.
Chapter 3--Treatment Of Empowerment Zones and Enterprise Communities
Sec. 955. Modifications to enterprise zone facility bond rules for all
empowerment zones and enterprise communities.
Sec. 956. Modifications to enterprise zone business definition for all
empowerment zones and enterprise communities.
Subtitle G--Other Provisions
Sec. 961. Use of estimates of shrinkage for inventory accounting.
Sec. 962. Assignment of workmen's compensation liability eligible for
exclusion relating to personal injury liability assignments.
Sec. 963. Tax-exempt status for certain State worker's compensation act
companies.
Sec. 964. Election for 1987 partnerships to continue exception from
treatment of publicly traded partnerships as corporations.
Sec. 965. Exclusion from unrelated business taxable income for certain
sponsorship payments.
Sec. 966. Associations of holders of timeshare interests to be taxed
like other homeowners associations.
Sec. 967. Additional advance refunding of certain Virgin Island bonds.
Sec. 968. Nonrecognition of gain on sale of stock to certain farmers'
cooperatives.
Sec. 969. Increased deductibility of business meal expenses for
individuals subject to Federal hours of service.
Sec. 970. Clarification of de minimis fringe benefit rules to no-charge
employee meals.
Sec. 971. Exemption of the incremental cost of a clean fuel vehicle from
the limits on depreciation for vehicles.
Sec. 972. Temporary suspension of taxable income limit on percentage
depletion for marginal production.
Sec. 973. Increase in standard mileage rate expense deduction for
charitable use of passenger automobile.
Sec. 974. Clarification of treatment of certain receivables purchased by
cooperative hospital service organizations.
Sec. 975. Deduction in computing adjusted gross income for expenses in
connection with service performed by certain officials.
Sec. 976. Combined employment tax reporting demonstration project.
Sec. 977. Elective carryback of existing carryovers of National Railroad
Passenger Corporation.
Subtitle H--Extension of Duty-Free Treatment Under Generalized System of
Preferences
Sec. 981. Generalized System of Preferences.
TITLE X--REVENUES
Subtitle A--Financial Products
Sec. 1001. Constructive sales treatment for appreciated financial
positions.
Sec. 1002. Limitation on exception for investment companies under
section 351.
Sec. 1003. Gains and losses from certain terminations with respect to
property.
Sec. 1004. Determination of original issue discount where pooled debt
obligations subject to acceleration.
Sec. 1005. Denial of interest deductions on certain debt instruments.
Subtitle B--Corporate Organizations and Reorganizations
Sec. 1011. Tax treatment of certain extraordinary dividends.
Sec. 1012. Application of section 355 to distributions in connection
with acquisitions and to intragroup transactions.
Sec. 1013. Tax treatment of redemptions involving related corporations.
Sec. 1014. Certain preferred stock treated as boot.
Sec. 1015. Modification of holding period applicable to dividends
received deduction.
Subtitle C--Administrative Provisions
Sec. 1021. Reporting of certain payments made to attorneys.
Sec. 1022. Decrease of threshold for reporting payments to corporations
performing services for Federal agencies.
Sec. 1023. Disclosure of return information for administration of
certain veterans programs.
Sec. 1024. Continuous levy on certain payments.
Sec. 1025. Modification of levy exemption.
Sec. 1026. Confidentiality and disclosure of returns and return
information.
Sec. 1027. Returns of beneficiaries of estates and trusts required to
file returns consistent with estate or trust return or to
notify Secretary of inconsistency.
Sec. 1028. Registration and other provisions relating to confidential
corporate tax shelters.
Subtitle D--Excise and Employment Tax Provisions
Sec. 1031. Extension and modification of taxes funding Airport and
Airway Trust Fund; increased deposits into such Fund.
Sec. 1032. Kerosene taxed as diesel fuel.
Sec. 1033. Restoration of Leaking Underground Storage Tank Trust Fund
taxes.
Sec. 1034. Application of communications tax to prepaid telephone cards.
Sec. 1035. Extension of temporary unemployment tax.
Subtitle E--Provisions Relating to Tax-Exempt Entities
Sec. 1041. Expansion of look-thru rule for interest, annuities,
royalties, and rents derived by subsidiaries of tax-exempt
organizations.
Sec. 1042. Termination of certain exceptions from rules relating to
exempt organizations which provide commercial-type insurance.
Subtitle F--Foreign Provisions
Sec. 1051. Definition of foreign personal holding company income.
Sec. 1052. Personal property used predominantly in the United States
treated as not property of a like kind with respect to
property used predominantly outside the United States.
Sec. 1053. Holding period requirement for certain foreign taxes.
Sec. 1054. Denial of treaty benefits for certain payments through hybrid
entities.
Sec. 1055. Interest on underpayments not reduced by foreign tax credit
carrybacks.
Sec. 1056. Clarification of period of limitations on claim for credit or
refund attributable to foreign tax credit carryforward.
Sec. 1057. Repeal of exception to alternative minimum foreign tax credit
limit.
Subtitle G--Partnership Provisions
Sec. 1061. Allocation of basis among properties distributed by
partnership.
Sec. 1062. Repeal of requirement that inventory be substantially
appreciated with respect to sale or exchange of partnership
interest.
Sec. 1063. Extension of time for taxing precontribution gain.
Subtitle H--Pension Provisions
Sec. 1071. Pension accrued benefit distributable without consent
increased to $5,000.
Sec. 1072. Election to receive taxable cash compensation in lieu of
nontaxable parking benefits.
Sec. 1073. Repeal of excess distribution and excess retirement
accumulation tax.
Sec. 1074. Increase in tax on prohibited transactions.
Sec. 1075. Basis recovery rules for annuities over more than one life.
Subtitle I--Other Revenue Provisions
Sec. 1081. Termination of suspense accounts for family corporations
required to use accrual method of accounting.
Sec. 1082. Modification of taxable years to which net operating losses
may be carried.
Sec. 1083. Modifications to taxable years to which unused credits may be
carried.
Sec. 1084. Expansion of denial of deduction for certain amounts paid in
connection with insurance.
Sec. 1085. Improved enforcement of the application of the earned income
credit.
Sec. 1086. Limitation on property for which income forecast method may
be used.
Sec. 1087. Expansion of requirement that involuntarily converted
property be replaced with property acquired from an unrelated
person.
Sec. 1088. Treatment of exception from installment sales rules for sales
of property by a manufacturer to a dealer.
Sec. 1089. Limitations on charitable remainder trust eligibility for
certain trusts.
Sec. 1090. Expanded SSA records for tax enforcement.
Sec. 1091. Modification of estimated tax safe harbors.
TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS
Subtitle A--General Provisions
Sec. 1101. Certain individuals exempt from foreign tax credit
limitation.
Sec. 1102. Exchange rate used in translating foreign taxes.
Sec. 1103. Election to use simplified section 904 limitation for
alternative minimum tax.
Sec. 1104. Treatment of personal transactions by individuals under
foreign currency rules.
Sec. 1105. Foreign tax credit treatment of dividends from noncontrolled
section 902 corporations.
Subtitle B--Treatment of Controlled Foreign Corporations
Sec. 1111. Gain on certain stock sales by controlled foreign
corporations treated as dividends.
Sec. 1112. Miscellaneous modifications to subpart F.
Sec. 1113. Indirect foreign tax credit allowed for certain lower tier
companies.
Subtitle C--Treatment of Passive Foreign Investment Companies
Sec. 1121. United States shareholders of controlled foreign corporations
not subject to PFIC inclusion.
Sec. 1122. Election of mark to market for marketable stock in passive
foreign investment company.
Sec. 1123. Valuation of assets for passive foreign investment company
determination.
Sec. 1124. Effective date.
Subtitle D--Repeal of Excise Tax on Transfers to Foreign Entities
Sec. 1131. Repeal of excise tax on transfers to foreign entities;
recognition of gain on certain transfers to foreign trusts and
estates.
Subtitle E--Information Reporting
Sec. 1141. Clarification of application of return requirement to foreign
partnerships.
Sec. 1142. Controlled foreign partnerships subject to information
reporting comparable to information reporting for controlled
foreign corporations.
Sec. 1143. Modifications relating to returns required to be filed by
reason of changes in ownership interests in foreign
partnership.
Sec. 1144. Transfers of property to foreign partnerships subject to
information reporting comparable to information reporting for
such transfers to foreign corporations.
Sec. 1145. Extension of statute of limitations for foreign transfers.
Sec. 1146. Increase in filing thresholds for returns as to organization
of foreign corporations and acquisitions of stock in such
corporations.
Subtitle F--Determination of Foreign or Domestic Status of Partnerships
Sec. 1151. Determination of foreign or domestic status of partnerships.
Subtitle G--Other Simplification Provisions
Sec. 1161. Transition rule for certain trusts.
Sec. 1162. Repeal of stock and securities safe harbor requirement that
principal office be outside the United States.
Sec. 1163. Miscellaneous clarifications.
Subtitle H--Other Provisions
Sec. 1171. Treatment of computer software as FSC export property.
Sec. 1172. Adjustment of dollar limitation on section 911 exclusion.
Sec. 1173. United States property not to include certain assets acquired
by dealers in ordinary course of trade or business.
Sec. 1174. Treatment of nonresident aliens engaged in international
transportation services.
Sec. 1175. Exemption for active financing income.
TITLE XII--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND
BUSINESSES
Subtitle A--Provisions Relating to Individuals
Sec. 1201. Basic standard deduction and minimum tax exemption amount for
certain dependents.
Sec. 1202. Increase in amount of tax exempt from estimated tax
requirements.
Sec. 1203. Treatment of certain reimbursed expenses of rural mail
carriers.
Sec. 1204. Treatment of traveling expenses of certain Federal employees
engaged in criminal investigations.
Sec. 1205. Payment of tax by commercially acceptable means.
Subtitle B--Provisions Relating to Businesses Generally
Sec. 1211. Modifications to look-back method for long-term contracts.
Sec. 1212. Minimum tax treatment of certain property and casualty
insurance companies.
Sec. 1213. Qualified lessee construction allowances for short-term
leases.
Subtitle C--Simplification Relating to Electing Large Partnerships
Part I--General Provisions
Sec. 1221. Simplified flow-through for electing large partnerships.
Sec. 1222. Simplified audit procedures for electing large partnerships.
Sec. 1223. Due date for furnishing information to partners of electing
large partnerships.
Sec. 1224. Returns required on magnetic media.
Sec. 1225. Treatment of partnership items of individual retirement
accounts.
Sec. 1226. Effective date.
Part II--Provisions Related to TEFRA Partnership Proceedings
Sec. 1231. Treatment of partnership items in deficiency proceedings.
Sec. 1232. Partnership return to be determinative of audit procedures to
be followed.
Sec. 1233. Provisions relating to statute of limitations.
Sec. 1234. Expansion of small partnership exception.
Sec. 1235. Exclusion of partial settlements from 1-year limitation on
assessment.
Sec. 1236. Extension of time for filing a request for administrative
adjustment.
Sec. 1237. Availability of innocent spouse relief in context of
partnership proceedings.
Sec. 1238. Determination of penalties at partnership level.
Sec. 1239. Provisions relating to court jurisdiction, etc.
Sec. 1240. Treatment of premature petitions filed by notice partners or
5-percent groups.
Sec. 1241. Bonds in case of appeals from certain proceeding.
Sec. 1242. Suspension of interest where delay in computational
adjustment resulting from certain settlements.
Sec. 1243. Special rules for administrative adjustment requests with
respect to bad debts or worthless securities.
Part III--Provision Relating to Closing of Partnership Taxable Year With
Respect to Deceased Partner, Etc.
Sec. 1246. Closing of partnership taxable year with respect to deceased
partner, etc.
Subtitle D--Provisions Relating to Real Estate Investment Trusts
Sec. 1251. Clarification of limitation on maximum number of
shareholders.
Sec. 1252. De minimis rule for tenant services income.
Sec. 1253. Attribution rules applicable to stock ownership.
Sec. 1254. Credit for tax paid by REIT on retained capital gains.
Sec. 1255. Repeal of 30-percent gross income requirement.
Sec. 1256. Modification of earnings and profits rules for determining
whether REIT has earnings and profits from non-REIT year.
Sec. 1257. Treatment of foreclosure property.
Sec. 1258. Payments under hedging instruments.
Sec. 1259. Excess noncash income.
Sec. 1260. Prohibited transaction safe harbor.
Sec. 1261. Shared appreciation mortgages.
Sec. 1262. Wholly owned subsidiaries.
Sec. 1263. Effective date.
Subtitle E--Provisions Relating to Regulated Investment Companies
Sec. 1271. Repeal of 30-percent gross income limitation.
Subtitle F--Taxpayer Protections
Sec. 1281. Reasonable cause exception for certain penalties.
Sec. 1282. Clarification of period for filing claims for refunds.
Sec. 1283. Repeal of authority to disclose whether prospective juror has
been audited.
Sec. 1284. Clarification of statute of limitations.
Sec. 1285. Awarding of administrative costs.
TITLE XIII--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES
Sec. 1301. Gifts to charities exempt from gift tax filing requirements.
Sec. 1302. Clarification of waiver of certain rights of recovery.
Sec. 1303. Transitional rule under section 2056A.
Sec. 1304. Treatment for estate tax purposes of short-term obligations
held by nonresident aliens.
Sec. 1305. Certain revocable trusts treated as part of estate.
Sec. 1306. Distributions during first 65 days of taxable year of estate.
Sec. 1307. Separate share rules available to estates.
Sec. 1308. Executor of estate and beneficiaries treated as related
persons for disallowance of losses, etc.
Sec. 1309. Treatment of funeral trusts.
Sec. 1310. Adjustments for gifts within 3 years of decedent's death.
Sec. 1311. Clarification of treatment of survivor annuities under
qualified terminable interest rules.
Sec. 1312. Treatment under qualified domestic trust rules of forms of
ownership which are not trusts.
Sec. 1313. Opportunity to correct certain failures under section 2032A.
Sec. 1314. Authority to waive requirement of United States trustee for
qualified domestic trusts.
TITLE XIV--SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES, TAX-
EXEMPT BONDS, AND OTHER MATTERS
Subtitle A--Excise Tax Simplification
Part I--Excise Taxes on Heavy Trucks and Luxury Cars
Sec. 1401. Increase in de minimis limit for after-market alterations for
heavy trucks and luxury cars.
Sec. 1402. Credit for tire tax in lieu of exclusion of value of tires in
computing price.
Part II--Provisions Related to Distilled Spirits, Wines, and Beer
Sec. 1411. Credit or refund for imported bottled distilled spirits
returned to distilled spirits plant.
Sec. 1412. Authority to cancel or credit export bonds without submission
of records.
Sec. 1413. Repeal of required maintenance of records on premises of
distilled spirits plant.
Sec. 1414. Fermented material from any brewery may be received at a
distilled spirits plant.
Sec. 1415. Repeal of requirement for wholesale dealers in liquors to
post sign.
Sec. 1416. Refund of tax to wine returned to bond not limited to
unmerchantable wine.
Sec. 1417. Use of additional ameliorating material in certain wines.
Sec. 1418. Domestically produced beer may be withdrawn free of tax for
use of foreign embassies, legations, etc.
Sec. 1419. Beer may be withdrawn free of tax for destruction.
Sec. 1420. Authority to allow drawback on exported beer without
submission of records.
Sec. 1421. Transfer to brewery of beer imported in bulk without payment
of tax.
Sec. 1422. Transfer to bonded wine cellars of wine imported in bulk
without payment of tax.
Part III--Other Excise Tax Provisions
Sec. 1431. Authority to grant exemptions from registration requirements.
Sec. 1432. Repeal of expired provisions.
Sec. 1433. Simplification of imposition of excise tax on arrows.
Sec. 1434. Modifications to retail tax on heavy trucks.
Sec. 1435. Skydiving flights exempt from tax on transportation of
persons by air.
Sec. 1436. Allowance or credit of refund for tax-paid aviation fuel
purchased by registered producer of aviation fuel.
Subtitle B--Tax-Exempt Bond Provisions
Sec. 1441. Repeal of $100,000 limitation on unspent proceeds under 1-
year exception from rebate.
Sec. 1442. Exception from rebate for earnings on bona fide debt service
fund under construction bond rules.
Sec. 1443. Repeal of debt service-based limitation on investment in
certain nonpurpose investments.
Sec. 1444. Repeal of expired provisions.
Sec. 1445. Effective date.
Subtitle C--Tax Court Procedures
Sec. 1451. Overpayment determinations of Tax Court.
Sec. 1452. Redetermination of interest pursuant to motion.
Sec. 1453. Application of net worth requirement for awards of litigation
costs.
Sec. 1454. Proceedings for determination of employment status.
Subtitle D--Other Provisions
Sec. 1461. Extension of due date of first quarter estimated tax payment
by private foundations.
Sec. 1462. Clarification of authority to withhold Puerto Rico income
taxes from salaries of Federal employees.
Sec. 1463. Certain notices disregarded under provision increasing
interest rate on large corporate underpayments.
TITLE XV--PENSIONS AND EMPLOYEE BENEFITS
Subtitle A--Simplification
Sec. 1501. Matching contributions of self-employed individuals not
treated as elective employer contributions.
Sec. 1502. Modification of prohibition of assignment or alienation.
Sec. 1503. Elimination of paperwork burdens on plans.
Sec. 1504. Modification of 403(b) exclusion allowance to conform to 415
modifications.
Sec. 1505. Extension of moratorium on application of certain
nondiscrimination rules to State and local governments.
Sec. 1506. Clarification of certain rules relating to employee stock
ownership plans of S corporations.
Sec. 1507. Modification of 10-percent tax for nondeductible
contributions.
Sec. 1508. Modification of funding requirements for certain plans.
Sec. 1509. Clarification of disqualification rules relating to
acceptance of rollover contributions.
Sec. 1510. New technologies in retirement plans.
Subtitle B--Other Provisions Relating to Pensions and Employee Benefits
Sec. 1521. Increase in current liability funding limit.
Sec. 1522. Special rules for church plans.
Sec. 1523. Repeal of application of unrelated business income tax to
ESOPs.
Sec. 1524. Diversification of section 401(k) plan investments.
Sec. 1525. Section 401(k) plans for certain irrigation and drainage
entities.
Sec. 1526. Portability of permissive service credit under governmental
pension plans.
Sec. 1527. Removal of dollar limitation on benefit payments from a
defined benefit plan maintained for certain police and fire
employees.
Sec. 1528. Survivor benefits for public safety officers killed in the
line of duty.
Sec. 1529. Treatment of certain disability benefits received by former
police officers or firefighters.
Sec. 1530. Gratuitous transfers for the benefit of employees.
Subtitle C--Provisions Relating to Certain Health Acts
Sec. 1531. Amendments to the Internal Revenue Code of 1986 to implement
the Newborns' and Mothers' Health Protection Act of 1996 and
the Mental Health Parity Act of 1996.
Sec. 1532. Special rules relating to church plans.
Subtitle D--Provisions Relating to Plan Amendments
Sec. 1541. Provisions relating to plan amendments.
TITLE XVI--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION
ACT OF 1996 AND OTHER LEGISLATION
Sec. 1600. Coordination with other titles.
Sec. 1601. Amendments related to Small Business Job Protection Act of
1996.
Sec. 1602. Amendments related to Health Insurance Portability and
Accountability Act of 1996.
Sec. 1603. Amendments related to Taxpayer Bill of Rights 2.
Sec. 1604. Miscellaneous provisions.
TITLE XVII--IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM
VETO
Sec. 1701. Identification of limited tax benefits subject to line item
veto.
TITLE I--CHILD TAX CREDIT
SEC. 101. CHILD TAX CREDIT.
(a) In General.--Subpart A of part IV of subchapter A of
chapter 1 (relating to nonrefundable personal credits) is
amended by inserting after section 23 the following new
section:
``SEC. 24. CHILD TAX CREDIT.
``(a) Allowance of Credit.--There shall be allowed as a
credit against the tax imposed by this chapter for the taxable
year with respect to each qualifying child of the taxpayer an
amount equal to $500 ($400 in the case of taxable years
beginning in 1998).
``(b) Limitation Based on Adjusted Gross Income.--
``(1) In general.--The amount of the credit
allowable under subsection (a) shall be reduced (but
not below zero) by $50 for each $1,000 (or fraction
thereof) by which the taxpayer's modified adjusted
gross income exceeds the threshold amount. For purposes
of the preceding sentence, the term `modified adjusted
gross income' means adjusted gross income increased by
any amount excluded from gross income under section
911, 931, or 933.
``(2) Threshold amount.--For purposes of paragraph
(1), the term `threshold amount' means--
``(A) $110,000 in the case of a joint
return,
``(B) $75,000 in the case of an individual
who is not married, and
``(C) $55,000 in the case of a married
individual filing a separate return.
For purposes of this paragraph, marital status shall be
determined under section 7703.
``(c) Qualifying Child.--For purposes of this section--
``(1) In general.--The term `qualifying child'
means any individual if--
``(A) the taxpayer is allowed a deduction
under section 151 with respect to such
individual for the taxable year,
``(B) such individual has not attained the
age of 17 as of the close of the calendar year
in which the taxable year of the taxpayer
begins, and
``(C) such individual bears a relationship
to the taxpayer described in section
32(c)(3)(B).
``(2) Exception for certain noncitizens.--The term
`qualifying child' shall not include any individual who
would not be a dependent if the first sentence of
section 152(b)(3) were applied without regard to all
that follows `resident of the United States'.
``(d) Additional Credit for Families With 3 or More
Children.--
``(1) In general.--In the case of a taxpayer with 3
or more qualifying children for any taxable year, the
amount of the credit allowed under this section shall
be equal to the greater of--
``(A) the amount of the credit allowed
under this section (without regard to this
subsection and after application of the
limitation under section 26), or
``(B) the alternative credit amount
determined under paragraph (2).
``(2) Alternative credit amount.--For purposes of
this subsection, the alternative credit amount is the
amount of the credit which would be allowed under this
section if the limitation under paragraph (3) were
applied in lieu of the limitation under section 26.
``(3) Limitation.--The limitation under this
paragraph for any taxable year is the limitation under
section 26 (without regard to this subsection)--
``(A) increased by the taxpayer's social
security taxes for such taxable year, and
``(B) reduced by the sum of--
``(i) the credits allowed under
this part other than under subpart C or
this section, and
``(ii) the credit allowed under
section 32 without regard to subsection
(m) thereof.
``(4) Unused credit to be refundable.--If the
amount of the credit under paragraph (1)(B) exceeds the
amount of the credit under paragraph (1)(A), such
excess shall be treated as a credit to which subpart C
applies. The rule of section 32(h) shall apply to such
excess.
``(5) Social security taxes.--For purposes of
paragraph (3)--
``(A) In general.--The term `social
security taxes' means, with respect to any
taxpayer for any taxable year--
``(i) the amount of the taxes
imposed by sections 3101 and 3201(a) on
amounts received by the taxpayer during
the calendar year in which the taxable
year begins,
``(ii) 50 percent of the taxes
imposed by section 1401 on the self-
employment income of the taxpayer for
the taxable year, and
``(iii) 50 percent of the taxes
imposed by section 3211(a)(1) on
amounts received by the taxpayer during
the calendar year in which the taxable
year begins.
``(B) Coordination with special refund of
social security taxes.--The term `social
security taxes' shall not include any taxes to
the extent the taxpayer is entitled to a
special refund of such taxes under section
6413(c).
``(C) Special rule.--Any amounts paid
pursuant to an agreement under section 3121(l)
(relating to agreements entered into by
American employers with respect to foreign
affiliates) which are equivalent to the taxes
referred to in subparagraph (A)(i) shall be
treated as taxes referred to in such
subparagraph.
``(e) Identification Requirement.--No credit shall be
allowed under this section to a taxpayer with respect to any
qualifying child unless the taxpayer includes the name and
taxpayer identification number of such qualifying child on the
return of tax for the taxable year.
``(f) Taxable Year Must Be Full Taxable Year.--Except in
the case of a taxable year closed by reason of the death of the
taxpayer, no credit shall be allowable under this section in
the case of a taxable year covering a period of less than 12
months.''.
(b) Supplemental Credit.--Section 32 is amended by adding
at the end the following new subsection:
``(m) Supplemental Child Credit.--
``(1) In general.--In the case of a taxpayer with
respect to whom a credit is allowed under section 24
for the taxable year, there shall be allowed as a
credit under this section an amount equal to the
supplemental child credit (if any) determined for such
taxpayer for such taxable year under paragraph (2).
Such credit shall be in addition to the credit allowed
under subsection (a).
``(2) Supplemental child credit.--For purposes of
this subsection, the supplemental child credit is an
amount equal to the excess (if any) of--
``(A) the amount determined under section
24(d)(1)(A), over
``(B) the amount determined under section
24(d)(1)(B).
The amounts referred to in subparagraphs (A) and (B)
shall be determined as if section 24(d) applied to all
taxpayers.
``(3) Coordination with section 24.--The amount of
the credit under section 24 shall be reduced by the
amount of the credit allowed under this subsection.''
(c) High Risk Pools Permitted To Cover Spouses and
Dependents of High Risk Individuals.--Paragraph (26) of section
501(c) is amended by adding at the end the following flush
sentence:
``A spouse and any qualifying child (as defined in
section 24(c)) of an individual described in
subparagraph (B) (without regard to this sentence)
shall be treated as described in subparagraph (B).''.
(d) Conforming Amendments.--
(1) Section 1324(b)(2) of title 31, United States
Code, is amended by inserting before the period at the
end ``, or enacted by the Taxpayer Relief Act of
1997''.
(2) Paragraph (2) of section 6213(g) (relating to
the definition of mathematical or clerical errors) is
amended by striking ``and'' at the end of subparagraph
(G), by striking the period at the end of subparagraph
(H) and inserting ``, and'', and by inserting after
subparagraph (H) the following new subparagraph:
``(I) an omission of a correct TIN required
under section 24(e) (relating to child tax
credit) to be included on a return.''.
(3) The table of sections for subpart A of part IV
of subchapter A of chapter 1 is amended by inserting
after the item relating to section 23 the following new
item:
``Sec. 24. Child tax credit.''.
(e) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
TITLE II--EDUCATION INCENTIVES
Subtitle A--Tax Benefits Relating to Education Expenses
SEC. 201. HOPE AND LIFETIME LEARNING CREDITS.
(a) In General.--Subpart A of part IV of subchapter A of
chapter 1 (relating to nonrefundable personal credits) is
amended by inserting after section 25 the following new
section:
``SEC. 25A. HOPE AND LIFETIME LEARNING CREDITS.
``(a) Allowance of Credit.--In the case of an individual,
there shall be allowed as a credit against the tax imposed by
this chapter for the taxable year the amount equal to the sum
of--
``(1) the Hope Scholarship Credit, plus
``(2) the Lifetime Learning Credit.
``(b) Hope Scholarship Credit.--
``(1) Per student credit.--In the case of any
eligible student for whom an election is in effect
under this section for any taxable year, the Hope
Scholarship Credit is an amount equal to the sum of--
``(A) 100 percent of so much of the
qualified tuition and related expenses paid by
the taxpayer during the taxable year (for
education furnished to the eligible student
during any academic period beginning in such
taxable year) as does not exceed $1,000, plus
``(B) 50 percent of such expenses so paid
as exceeds $1,000 but does not exceed the
applicable limit.
``(2) Limitations applicable to hope scholarship
credit.--
``(A) Credit allowed only for 2 taxable
years.--An election to have this section apply
with respect to any eligible student for
purposes of the Hope Scholarship Credit under
subsection (a)(1) may not be made for any
taxable year if such an election (by the
taxpayer or any other individual) is in effect
with respect to such student for any 2 prior
taxable years.
``(B) Credit allowed for year only if
individual is at least \1/2\ time student for
portion of year.--The Hope Scholarship Credit
under subsection (a)(1) shall not be allowed
for a taxable year with respect to the
qualified tuition and related expenses of an
individual unless such individual is an
eligible student for at least one academic
period which begins during such year.
``(C) Credit allowed only for first 2 years
of postsecondary education.--The Hope
Scholarship Credit under subsection (a)(1)
shall not be allowed for a taxable year with
respect to the qualified tuition and related
expenses of an eligible student if the student
has completed (before the beginning of such
taxable year) the first 2 years of
postsecondary education at an eligible
educational institution.
``(D) Denial of credit if student convicted
of a felony drug offense.--The Hope Scholarship
Credit under subsection (a)(1) shall not be
allowed for qualified tuition and related
expenses for the enrollment or attendance of a
student for any academic period if such student
has been convicted of a Federal or State felony
offense consisting of the possession or
distribution of a controlled substance before
the end of the taxable year with or within
which such period ends.
``(3) Eligible student.--For purposes of this
subsection, the term `eligible student' means, with
respect to any academic period, a student who--
``(A) meets the requirements of section
484(a)(1) of the Higher Education Act of 1965
(20 U.S.C. 1091(a)(1)), as in effect on the
date of the enactment of this section, and
``(B) is carrying at least \1/2\ the normal
full-time work load for the course of study the
student is pursuing.
``(4) Applicable limit.--For purposes of paragraph
(1)(B), the applicable limit for any taxable year is an
amount equal to 2 times the dollar amount in effect
under paragraph (1)(A) for such taxable year.
``(c) Lifetime Learning Credit.--
``(1) Per taxpayer credit.--The Lifetime Learning
Credit for any taxpayer for any taxable year is an
amount equal to 20 percent of so much of the qualified
tuition and related expenses paid by the taxpayer
during the taxable year (for education furnished during
any academic period beginning in such taxable year) as
does not exceed $10,000 ($5,000 in the case of taxable
years beginning before January 1, 2003).
``(2) Special rules for determining expenses.--
``(A) Coordination with hope scholarship.--
The qualified tuition and related expenses with
respect to an individual who is an eligible
student for whom a Hope Scholarship Credit
under subsection (a)(1) is allowed for the
taxable year shall not be taken into account
under this subsection.
``(B) Expenses eligible for lifetime
learning credit.--For purposes of paragraph
(1), qualified tuition and related expenses
shall include expenses described in subsection
(f)(1) with respect to any course of
instruction at an eligible educational
institution to acquire or improve job skills of
the individual.
``(d) Limitation Based on Modified Adjusted Gross Income.--
``(1) In general.--The amount which would (but for
this subsection) be taken into account under subsection
(a) for the taxable year shall be reduced (but not
below zero) by the amount determined under paragraph
(2).
``(2) Amount of reduction.--The amount determined
under this paragraph is the amount which bears the same
ratio to the amount which would be so taken into
account as--
``(A) the excess of--
``(i) the taxpayer's modified
adjusted gross income for such taxable
year, over
``(ii) $40,000 ($80,000 in the case
of a joint return), bears to
``(B) $10,000 ($20,000 in the case of a
joint return).
``(3) Modified adjusted gross income.--The term
`modified adjusted gross income' means the adjusted
gross income of the taxpayer for the taxable year
increased by any amount excluded from gross income
under section 911, 931, or 933.
``(e) Election To Have Section Apply.--
``(1) In general.--No credit shall be allowed under
subsection (a) for a taxable year with respect to the
qualified tuition and related expenses of an individual
unless the taxpayer elects to have this section apply
with respect to such individual for such year.
``(2) Coordination with exclusions.--An election
under this subsection shall not take effect with
respect to an individual for any taxable year if any
portion of any distribution during such taxable year
from an education individual retirement account is
excluded from gross income under section 530(d)(2).
``(f) Definitions.--For purposes of this section--
``(1) Qualified tuition and related expenses.--
``(A) In general.--The term `qualified
tuition and related expenses' means tuition and
fees required for the enrollment or attendance
of--
``(i) the taxpayer,
``(ii) the taxpayer's spouse, or
``(iii) any dependent of the
taxpayer with respect to whom the
taxpayer is allowed a deduction under
section 151,
at an eligible educational institution for
courses of instruction of such individual at
such institution.
``(B) Exception for education involving
sports, etc.--Such term does not include
expenses with respect to any course or other
education involving sports, games, or hobbies,
unless such course or other education is part
of the individual's degree program.
``(C) Exception for nonacademic fees.--Such
term does not include student activity fees,
athletic fees, insurance expenses, or other
expenses unrelated to an individual's academic
course of instruction.
``(2) Eligible educational institution.--The term
`eligible educational institution' means an
institution--
``(A) which is described in section 481 of
the Higher Education Act of 1965 (20 U.S.C.
1088), as in effect on the date of the
enactment of this section, and
``(B) which is eligible to participate in a
program under title IV of such Act.
``(g) Special Rules.--
``(1) Identification requirement.--No credit shall
be allowed under subsection (a) to a taxpayer with
respect to the qualified tuition and related expenses
of an individual unless the taxpayer includes the name
and taxpayer identification number of such individual
on the return of tax for the taxable year.
``(2) Adjustment for certain scholarships, etc.--
The amount of qualified tuition and related expenses
otherwise taken into account under subsection (a) with
respect to an individual for an academic period shall
be reduced (before the application of subsections (b),
(c), and (d)) by the sum of any amounts paid for the
benefit of such individual which are allocable to such
period as--
``(A) a qualified scholarship which is
excludable from gross income under section 117,
``(B) an educational assistance allowance
under chapter 30, 31, 32, 34, or 35 of title
38, United States Code, or under chapter 1606
of title 10, United States Code, and
``(C) a payment (other than a gift,
bequest, devise, or inheritance within the
meaning of section 102(a)) for such
individual's educational expenses, or
attributable to such individual's enrollment at
an eligible educational institution, which is
excludable from gross income under any law of
the United States.
``(3) Treatment of expenses paid by dependent.--If
a deduction under section 151 with respect to an
individual is allowed to another taxpayer for a taxable
year beginning in the calendar year in which such
individual's taxable year begins--
``(A) no credit shall be allowed under
subsection (a) to such individual for such
individual's taxable year, and
``(B) qualified tuition and related
expenses paid by such individual during such
individual's taxable year shall be treated for
purposes of this section as paid by such other
taxpayer.
``(4) Treatment of certain prepayments.--If
qualified tuition and related expenses are paid by the
taxpayer during a taxable year for an academic period
which begins during the first 3 months following such
taxable year, such academic period shall be treated for
purposes of this section as beginning during such
taxable year.
``(5) Denial of double benefit.--No credit shall be
allowed under this section for any expense for which a
deduction is allowed under any other provision of this
chapter.
``(6) No credit for married individuals filing
separate returns.--If the taxpayer is a married
individual (within the meaning of section 7703), this
section shall apply only if the taxpayer and the
taxpayer's spouse file a joint return for the taxable
year.
``(7) Nonresident aliens.--If the taxpayer is a
nonresident alien individual for any portion of the
taxable year, this section shall apply only if such
individual is treated as a resident alien of the United
States for purposes of this chapter by reason of an
election under subsection (g) or (h) of section 6013.
``(h) Inflation Adjustments.--
``(1) Dollar limitation on amount of credit.--
``(A) In general.--In the case of a taxable
year beginning after 2001, each of the $1,000
amounts under subsection (b)(1) shall be
increased by an amount equal to--
``(i) such dollar amount,
multiplied by
``(ii) the cost-of-living
adjustment determined under section
1(f)(3) for the calendar year in which
the taxable year begins, determined by
substituting `calendar year 2000' for
`calendar year 1992' in subparagraph
(B) thereof.
``(B) Rounding.--If any amount as adjusted
under subparagraph (A) is not a multiple of
$1,000 such amount shall be rounded to the next
lowest multiple of $1,000.
``(2) Income limits.--
``(A) In general.--In the case of a taxable
year beginning after 2001, the $40,000 and
$80,000 amounts in subsection (d)(2) shall each
be increased by an amount equal to--
``(i) such dollar amount,
multiplied by
``(ii) the cost-of-living
adjustment determined under section
1(f)(3) for the calendar year in which
the taxable year begins, determined by
substituting `calendar year 2000' for
`calendar year 1992' in subparagraph
(B) thereof.
``(B) Rounding.--If any amount as adjusted
under subparagraph (A) is not a multiple of
$1,000, such amount shall be rounded to the
next lowest multiple of $1,000.
``(i) Regulations.--The Secretary may prescribe such
regulations as may be necessary or appropriate to carry out
this section, including regulations providing for a recapture
of the credit allowed under this section in cases where there
is a refund in a subsequent taxable year of any amount which
was taken into account in determining the amount of such
credit.''.
(b) Extension of Procedures Applicable to Mathematical or
Clerical Errors.--Paragraph (2) of section 6213(g) (relating to
the definition of mathematical or clerical errors), as amended
by section 101, is amended by striking ``and'' at the end of
subparagraph (H), by striking the period at the end of
subparagraph (I) and inserting ``, and'', and by inserting
after subparagraph (I) the following new subparagraph:
``(J) an omission of a correct TIN required
under section 25A(g)(1) (relating to higher
education tuition and related expenses) to be
included on a return.''.
(c) Returns Relating to Tuition and Related Expenses.--
(1) In general.--Subpart B of part III of
subchapter A of chapter 61 (relating to information
concerning transactions with other persons) is amended
by inserting after section 6050R the following new
section:
``SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION TUITION AND RELATED
EXPENSES.
``(a) In General.--Any person--
``(1) which is an eligible educational institution
which receives payments for qualified tuition and
related expenses with respect to any individual for any
calendar year, or
``(2) which is engaged in a trade or business and
which, in the course of such trade or business, makes
payments during any calendar year to any individual
which constitute reimbursements or refunds (or similar
amounts) of qualified tuition and related expenses of
such individual,
shall make the return described in subsection (b) with respect
to the individual at such time as the Secretary may by
regulations prescribe.
``(b) Form and Manner of Returns.--A return is described in
this subsection if such return--
``(1) is in such form as the Secretary may
prescribe,
``(2) contains--
``(A) the name, address, and TIN of the
individual with respect to whom payments
described in subsection (a) were received from
(or were paid to),
``(B) the name, address, and TIN of any
individual certified by the individual
described in subparagraph (A) as the taxpayer
who will claim the individual as a dependent
for purposes of the deduction allowable under
section 151 for any taxable year ending with or
within the calendar year, and
``(C) the--
``(i) aggregate amount of payments
for qualified tuition and related
expenses received with respect to the
individual described in subparagraph
(A) during the calendar year, and
``(ii) aggregate amount of
reimbursements or refunds (or similar
amounts) paid to such individual during
the calendar year, and
``(D) such other information as the
Secretary may prescribe.
``(c) Application to Governmental Units.--For purposes of
this section--
``(1) a governmental unit or any agency or
instrumentality thereof shall be treated as a person,
and
``(2) any return required under subsection (a) by
such governmental entity shall be made by the officer
or employee appropriately designated for the purpose of
making such return.
``(d) Statements To Be Furnished to Individuals With
Respect to Whom Information Is Required.--Every person required
to make a return under subsection (a) shall furnish to each
individual whose name is required to be set forth in such
return under subparagraph (A) or (B) of subsection (b)(2) a
written statement showing--
``(1) the name, address, and phone number of the
information contact of the person required to make such
return, and
``(2) the aggregate amounts described in
subparagraph (C) of subsection (b)(2).
The written statement required under the preceding sentence
shall be furnished on or before January 31 of the year
following the calendar year for which the return under
subsection (a) was required to be made.
``(e) Definitions.--For purposes of this section, the terms
`eligible educational institution' and `qualified tuition and
related expenses' have the meanings given such terms by section
25A.
``(f) Returns Which Would Be Required To Be Made by 2 or
More Persons.--Except to the extent provided in regulations
prescribed by the Secretary, in the case of any amount received
by any person on behalf of another person, only the person
first receiving such amount shall be required to make the
return under subsection (a).
``(g) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions of
this section. No penalties shall be imposed under part II of
subchapter B of chapter 68 with respect to any return or
statement required under this section until such time as such
regulations are issued.''.
(2) Assessable penalties.--
(A) Subparagraph (B) of section 6724(d)(1)
(relating to definitions) is amended by
redesignating clauses (ix) through (xiv) as
clauses (x) through (xv), respectively, and by
inserting after clause (viii) the following new
clause:
``(ix) section 6050S (relating to
returns relating to payments for
qualified tuition and related
expenses),''.
(B) Paragraph (2) of section 6724(d) is
amended by striking ``or'' at the end of the
next to last subparagraph, by striking the
period at the end of the last subparagraph and
inserting ``, or'', and by adding at the end
the following new subparagraph:
``(Z) section 6050S(d) (relating to returns
relating to qualified tuition and related
expenses).''.
(3) Clerical amendment.--The table of sections for
subpart B of part III of subchapter A of chapter 61 is
amended by inserting after the item relating to section
6050R the following new item:
``Sec. 6050S. Returns relating to higher education tuition and
related expenses.''.
(d) Coordination With Section 135.--Subsection (d) of
section 135 is amended by redesignating paragraphs (2) and (3)
as paragraphs (3) and (4), respectively, and by inserting after
paragraph (1) the following new paragraph:
``(2) Coordination with higher education credit.--
The amount of the qualified higher education expenses
otherwise taken into account under subsection (a) with
respect to the education of an individual shall be
reduced (before the application of subsection (b)) by
the amount of such expenses which are taken into
account in determining the credit allowable to the
taxpayer or any other person under section 25A with
respect to such expenses.''.
(e) Clerical Amendment.--The table of sections for subpart
A of part IV of subchapter A of chapter 1 is amended by
inserting after the item relating to section 25 the following
new item:
``Sec. 25A. Higher education tuition and related expenses.''.
(f) Effective Dates.--
(1) In general.--The amendments made by this
section shall apply to expenses paid after December 31,
1997 (in taxable years ending after such date), for
education furnished in academic periods beginning after
such date.
(2) Lifetime learning credit.--Section 25A(a)(2) of
the Internal Revenue Code of 1986 shall apply to
expenses paid after June 30, 1998 (in taxable years
ending after such date), for education furnished in
academic periods beginning after such dates.
SEC. 202. DEDUCTION FOR INTEREST ON EDUCATION LOANS.
(a) In General.--Part VII of subchapter B of chapter 1
(relating to additional itemized deductions for individuals) is
amended by redesignating section 221 as section 222 and by
inserting after section 220 the following new section:
``SEC. 221. INTEREST ON EDUCATION LOANS.
``(a) Allowance of Deduction.--In the case of an
individual, there shall be allowed as a deduction for the
taxable year an amount equal to the interest paid by the
taxpayer during the taxable year on any qualified education
loan.
``(b) Maximum Deduction.--
``(1) In general.--Except as provided in paragraph
(2), the deduction allowed by subsection (a) for the
taxable year shall not exceed the amount determined in
accordance with the following table:
``In the case of taxable The dollar
years beginning in: amount is:
1998.......................................... $1,000
1999.......................................... $1,500
2000.......................................... $2,000
2001 or thereafter............................ $2,500.
``(2) Limitation based on modified adjusted gross
income.--
``(A) In general.--The amount which would
(but for this paragraph) be allowable as a
deduction under this section shall be reduced
(but not below zero) by the amount determined
under subparagraph (B).
``(B) Amount of reduction.--The amount
determined under this subparagraph is the
amount which bears the same ratio to the amount
which would be so taken into account as--
``(i) the excess of--
``(I) the taxpayer's
modified adjusted gross income
for such taxable year, over
``(II) $40,000 ($60,000 in
the case of a joint return),
bears to
``(ii) $15,000.
``(C) Modified adjusted gross income.--The
term `modified adjusted gross income' means
adjusted gross income determined--
``(i) without regard to this
section and sections 135, 137, 911,
931, and 933, and
``(ii) after application of
sections 86, 219, and 469.
For purposes of sections 86, 135, 137, 219, and
469, adjusted gross income shall be determined
without regard to the deduction allowed under
this section.
``(c) Dependents Not Eligible for Deduction.--No deduction
shall be allowed by this section to an individual for the
taxable year if a deduction under section 151 with respect to
such individual is allowed to another taxpayer for the taxable
year beginning in the calendar year in which such individual's
taxable year begins.
``(d) Limit on Period Deduction Allowed.--A deduction shall
be allowed under this section only with respect to interest
paid on any qualified education loan during the first 60 months
(whether or not consecutive) in which interest payments are
required. For purposes of this paragraph, any loan and all
refinancings of such loan shall be treated as 1 loan.
``(e) Definitions.--For purposes of this section--
``(1) Qualified education loan.--The term
`qualified education loan' means any indebtedness
incurred to pay qualified higher education expenses--
``(A) which are incurred on behalf of the
taxpayer, the taxpayer's spouse, or any
dependent of the taxpayer as of the time the
indebtedness was incurred,
``(B) which are paid or incurred within a
reasonable period of time before or after the
indebtedness is incurred, and
``(C) which are attributable to education
furnished during a period during which the
recipient was an eligible student.
Such term includes indebtedness used to refinance
indebtedness which qualifies as a qualified education
loan. The term `qualified education loan' shall not
include any indebtedness owed to a person who is
related (within the meaning of section 267(b) or
707(b)(1)) to the taxpayer.
``(2) Qualified higher education expenses.--The
term `qualified higher education expenses' means the
cost of attendance (as defined in section 472 of the
Higher Education Act of 1965, 20 U.S.C. 1087ll, as in
effect on the day before the date of the enactment of
this Act) at an eligible educational institution,
reduced by the sum of--
``(A) the amount excluded from gross income
under section 127, 135, or 530 by reason of
such expenses, and
``(B) the amount of any scholarship,
allowance, or payment described in section
25A(g)(2).
For purposes of the preceding sentence, the term
`eligible educational institution' has the same meaning
given such term by section 25A(f)(2), except that such
term shall also include an institution conducting an
internship or residency program leading to a degree or
certificate awarded by an institution of higher
education, a hospital, or a health care facility which
offers postgraduate training.
``(3) Eligible student.--The term `eligible
student' has the meaning given such term by section
25A(b)(3).
``(4) Dependent.--The term `dependent' has the
meaning given such term by section 152.
``(f) Special Rules.--
``(1) Denial of double benefit.--No deduction shall
be allowed under this section for anyamount for which a
deduction is allowable under any other provision of this chapter.
``(2) Married couples must file joint return.--If
the taxpayer is married at the close of the taxable
year, the deduction shall be allowed under subsection
(a) only if the taxpayer and the taxpayer's spouse file
a joint return for the taxable year.
``(3) Marital status.--Marital status shall be
determined in accordance with section 7703.
``(g) Inflation Adjustments.--
``(1) In general.--In the case of a taxable year
beginning after 2002, the $40,000 and $60,000 amounts
in subsection (b)(2) shall each be increased by an
amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment
determined under section 1(f)(3) for the
calendar year in which the taxable year begins,
determined by substituting `calendar year 2001'
for `calendar year 1992' in subparagraph (B)
thereof.
``(2) Rounding.--If any amount as adjusted under
paragraph (1) is not a multiple of $5,000, such amount
shall be rounded to the next lowest multiple of
$5,000.''.
(b) Deduction Allowed Whether or Not Taxpayer Itemizes
Other Deductions.--Subsection (a) of section 62 is amended by
inserting after paragraph (16) the following new paragraph:
``(17) Interest on education loans.--The deduction
allowed by section 221.''.
(c) Reporting Requirement.--
(1) In general.--Section 6050S(a)(2) (relating to
returns relating to higher education tuition and
related expenses) is amended to read as follows:
``(2) which is engaged in a trade or business and
which, in the course of such trade or business--
``(A) makes payments during any calendar
year to any individual which constitutes
reimbursements or refunds (or similar amounts)
of qualified tuition and related expenses of
such individual, or
``(B) except as provided in regulations,
receives from any individual interest
aggregating $600 or more for any calendar year
on 1 or more qualified education loans,''.
(2) Information.--Section 6050S(b)(2) is amended--
(A) by inserting ``or interest'' after
``payments'' in subparagraph (A), and
(B) in subparagraph (C), by striking
``and'' at the end of clause (i), by inserting
``and'' at the end of clause (ii), and by
inserting after clause (ii) the following:
``(iii) aggregate amount of
interest received for the calendar year
from such individual,''.
(3) Definition.--Section 6050S(e) is amended by
inserting ``, and except as provided in regulations,
the term `qualified education loan' has the meaning
given such term by section 221(e)(1)'' after ``section
25A''.
(d) Clerical Amendment.--The table of sections for part VII
of subchapter B of chapter 1 is amended by striking the last
item and inserting the following new items:
``Sec. 221. Interest on education loans.
``Sec. 222. Cross reference.''.
(e) Effective Date.--The amendments made by this section
shall apply to any qualified education loan (as defined in
section 221(e)(1) of the Internal Revenue Code of 1986, as
added by this section) incurred on, before, or after the date
of the enactment of this Act, but only with respect to--
(1) any loan interest payment due and paid after
December 31, 1997, and
(2) the portion of the 60-month period referred to
in section 221(d) of the Internal Revenue Code of 1986
(as added by this section) after December 31, 1997.
SEC. 203. PENALTY-FREE WITHDRAWALS FROM INDIVIDUAL RETIREMENT PLANS FOR
HIGHER EDUCATION EXPENSES.
(a) In General.--Paragraph (2) of section 72(t) (relating
to exceptions to 10-percent additional tax on early
distributions from qualified retirement plans) is amended by
adding at the end the following new subparagraph:
``(E) Distributions from individual
retirement plans for higher education
expenses.--Distributions to an individual from
an individual retirement plan to the extent
such distributions do not exceed the qualified
higher education expenses (as defined in
paragraph (7)) of the taxpayer for the taxable
year. Distributions shall not be taken into
account under the preceding sentence if such
distributions are described in subparagraph
(A), (C), or (D) or to the extent paragraph (1)
does not apply to such distributions by reason
of subparagraph (B).''.
(b) Definition.--Section 72(t) is amended by adding at the
end the following new paragraph:
``(7) Qualified higher education expenses.--For
purposes of paragraph (2)(E)--
``(A) In general.--The term `qualified
higher education expenses' means qualified
higher education expenses (as defined in
section 529(e)(3)) for education furnished to--
``(i) the taxpayer,
``(ii) the taxpayer's spouse, or
``(iii) any child (as defined in
section 151(c)(3)) or grandchild of the
taxpayer or the taxpayer's spouse,
at an eligible educational institution (as
defined in section 529(e)(5)).
``(B) Coordination with other benefits.--
The amount of qualified higher education
expenses for any taxable year shall be reduced
as provided in section 25A(g)(2).''.
(c) Effective Date.--The amendments made by this section
shall apply to distributions after December 31, 1997, with
respect to expenses paid after such date (intaxable years
ending after such date), for education furnished in academic periods
beginning after such date.
Subtitle B--Expanded Education Investment Savings Opportunities
PART I--QUALIFIED TUITION PROGRAMS
SEC. 211. MODIFICATIONS OF QUALIFIED STATE TUITION PROGRAMS.
(a) Qualified Higher Education Expenses To Include Room and
Board.--Paragraph (3) of section 529(e) (defining qualified
higher education expenses) is amended to read as follows:
``(3) Qualified higher education expenses.--
``(A) In general.--The term `qualified
higher education expenses' means tuition, fees,
books, supplies, and equipment required for the
enrollment or attendance of a designated
beneficiary at an eligible educational
institution.
``(B) Room and board included for students
under guaranteed plans who are at least half-
time.--
``(i) In general.--In the case of
an individual who is an eligible
student (as defined in section
25A(b)(3)) for any academic period,
such term shall also include reasonable
costs for such period (as determined
under the qualified State tuition
program) incurred by the designated
beneficiary for room and board while
attending such institution. For
purposes of subsection (b)(7), a
designated beneficiary shall be treated
as meeting the requirements of this
clause.
``(ii) Limitation.--The amount
treated as qualified higher education
expenses by reason of the preceding
sentence shall not exceed the minimum
amount (applicable to the student)
included for room and board for such
period in the cost of attendance (as
defined in section 472 of the Higher
Education Act of 1965, 20 U.S.C.
1087ll, as in effect on the date of the
enactment of this paragraph) for the
eligible educational institution for
such period.''
(b) Additional Modifications.--
(1) Member of family.--Paragraph (2) of section
529(e) (relating to other definitions and special
rules) is amended to read as follows:
``(2) Member of family.--The term `member of the
family' means--
``(A) an individual who bears a
relationship to another individual which is a
relationship described in paragraphs (1)
through (8) of section 152(a), and
``(B) the spouse of any individual
described in subparagraph (A).''.
(2) Eligible educational institution.--Section
529(e) is amended by adding at the end the following:
``(5) Eligible educational institution.--The term
`eligible educational institution' means an
institution--
``(A) which is described in section 481 of
the Higher Education Act of 1965 (20 U.S.C.
1088), as in effect on the date of the
enactment of this paragraph, and
``(B) which is eligible to participate in a
program under title IV of such Act.''.
(3) Estate and gift tax treatment.--
(A) Gift tax treatment.--
(i) Paragraph (2) of section 529(c)
is amended to read as follows:
``(2) Gift tax treatment of contributions.--For
purposes of chapters 12 and 13--
``(A) In general.--Any contribution to a
qualified tuition program on behalf of any
designated beneficiary--
``(i) shall be treated as a
completed gift to such beneficiary
which is not a future interest in
property, and
``(ii) shall not be treated as a
qualified transfer under section
2503(e).
``(B) Treatment of excess contributions.--
If the aggregate amount of contributions
described in subparagraph (A) during the
calendar year by a donor exceeds the limitation
for such year under section 2503(b), such
aggregate amount shall, at the election of the
donor, be taken into account for purposes of
such section ratably over the 5-year period
beginning with such calendar year.''
(ii) Paragraph (5) of section
529(c) is amended to read as follows:
``(5) Other gift tax rules.--For purposes of
chapters 12 and 13--
``(A) Treatment of distributions.--Except
as provided in subparagraph (B), in no event
shall a distribution from a qualified tuition
program be treated as a taxable gift.
``(B) Treatment of designation of new
beneficiary.--The taxes imposed by chapters 12
and 13 shall apply to a transfer by reason of a
change in the designated beneficiary under the
program (or a rollover to the account of a new
beneficiary) only if the new beneficiary is a
generation below the generation of the old
beneficiary (determined in accordance with
section 2651).''.
(B) Estate tax treatment.--Paragraph (4) of
section 529(c) is amended to read as follows:
``(4) Estate tax treatment.--
``(A) In general.--No amount shall be
includible in the gross estate of any
individual for purposes of chapter 11 by reason
of an interest in a qualified tuition program.
``(B) Amounts includible in estate of
designated beneficiary in certain cases.--
Subparagraph (A) shall not apply to amounts
distributed on account of the death of a
beneficiary.
``(C) Amounts includible in estate of donor
making excess contributions.--In the case of a
donor who makes the election described in
paragraph (2)(B) and who dies before the close
of the 5-year period referred to in such
paragraph, notwithstanding subparagraph (A),
the gross estate of the donor shall include the
portion of such contributions properly
allocable to periods after the date of death of
the donor.''
(4) Prohibition against investment direction.--
Section 529(b)(5) is amended by inserting ``directly or
indirectly'' after ``may not''.
(c) Coordination With Education Savings Bond.--Section
135(c)(2) (defining qualified higher education expenses) is
amended by adding at the end the following:
``(C) Contributions to qualified state
tuition program.--Such term shall include any
contribution to a qualified State tuition
program (as defined in section 529) on behalf
of a designated beneficiary (as defined in such
section) who is an individual described in
subparagraph (A); but there shall be no
increase in the investment in the contract for
purposes of applying section 529(c)(3)(A) by
reason of any portion of such contributionwhich
is not includible in gross income by reason of this subparagraph.''.
(d) Clarification of Taxation of Distributions.--
Subparagraph (A) of section 529(c)(3) is amended by striking
``section 72'' and inserting ``section 72(b)''.
(e) Technical Amendments.--
(1)(A) The heading for part VIII of subchapter F of
chapter 1 is amended to read as follows:
``PART VIII--HIGHER EDUCATION SAVINGS ENTITIES''.
(B) The table of parts for subchapter F of chapter
1 is amended by striking the item relating to part VIII
and inserting:
``Part VIII. Higher education savings entities.''.
(2)(A) Section 529(d) is amended to read as
follows:
``(d) Reports.--Each officer or employee having control of
the qualified State tuition program or their designee shall
make such reports regarding such program to the Secretary and
to designated beneficiaries with respect to contributions,
distributions, and such other matters as the Secretary may
require. The reports required by this subsection shall be filed
at such time and in such manner and furnished to such
individuals at such time and in such manner as may be required
by the Secretary.''.
(B) Paragraph (2) of section 6693(a) (relating to
failure to provide reports on individual retirement
accounts or annuities) is amended by striking ``and''
at the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ``, and'',
and by adding at the end the following new
subparagraph:
``(C) Section 529(d) (relating to qualified
State tuition programs).''.
(C) The section heading for section 6693 is amended
by striking ``INDIVIDUAL RETIREMENT'' and inserting
``CERTAIN TAX-FAVORED''.
(D) The item relating to section 6693 in the table
of sections for part I of subchapter B of chapter 68 is
amended by striking ``individual retirement'' and
inserting ``certain tax-favored''.
(f) Effective Dates.--
(1) In general.--Except as otherwise provided in
this subsection, the amendments made by this section
shall take effect on January 1, 1998.
(2) Expenses to include room and board.--The
amendment made by subsection (a) shall take effect as
if included in the amendments made by section 1806 of
the Small Business Job Protection Act of 1996.
(3) Eligible educational institution.--The
amendment made by subsection (b)(2) shall apply to
distributions after December 31, 1997, with respect to
expenses paid after such date (in taxable years ending
after such date), for education furnished in academic
periods beginning after such date.
(4) Coordination with education savings bonds.--The
amendment made by subsection (c) shall apply to taxable
years beginning after December 31, 1997.
(5) Estate and gift tax changes.--
(A) Gift tax changes.--Paragraphs (2) and
(5) of section 529(c) of the Internal Revenue
Code of 1986, as amended by this section, shall
apply to transfers (including designations of
new beneficiaries) made after the date of the
enactment of this Act.
(B) Estate tax changes.--Paragraph (4) of
such section 529(c) shall apply to estates of
decedents dying after June 8, 1997.
(6) Transition rule for pre-august 20, 1996
contracts.--In the case of any contract issued prior to
August 20, 1996, section 529(c)(3)(C) of the Internal
Revenue Code of 1986 shall be applied for taxable years
ending after August 20, 1996, without regard to the
requirement that a distribution be transferred to a
member of the family or the requirement that a change
in beneficiaries may be made only to a member of the
family.
PART II--EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS
SEC. 213. EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.
(a) In General.--Part VIII of subchapter F of chapter 1
(relating to qualified State tuition programs) is amended by
adding at the end the following new section:
``SEC. 530. EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.
``(a) General Rule.--An education individual retirement
account shall be exempt from taxation under this subtitle.
Notwithstanding the preceding sentence, the education
individual retirement account shall be subject to the taxes
imposed by section 511 (relating to imposition of tax on
unrelated business income of charitable organizations).
``(b) Definitions and Special Rules.--For purposes of this
section--
``(1) Education individual retirement account.--The
term `education individual retirement account' means a
trust created or organized in the United States
exclusively for the purpose of paying the qualified
higher education expenses of the designated beneficiary
of the trust (and designated as an education individual
retirement account at the time created or organized),
but only if the written governing instrument creating
the trust meets the following requirements:
``(A) No contribution will be accepted--
``(i) unless it is in cash,
``(ii) after the date on which such
beneficiary attains age 18, or
``(iii) except in the case of
rollover contributions, if such
contribution would result in aggregate
contributions for the taxable year
exceeding $500.
``(B) The trustee is a bank (as defined in
section 408(n)) or another person who
demonstrates to the satisfaction of the
Secretary that the manner in which that person
will administer the trust will be consistent
with the requirements of this section or who
has so demonstrated with respect to any
individual retirement plan.
``(C) No part of the trust assets will be
invested in life insurance contracts.
``(D) The assets of the trust shall not be
commingled with other property except in a
common trust fund or common investment fund.
``(E) Upon the death of the designated
beneficiary, any balance to the credit of the
beneficiary shall be distributed within 30 days
after the date of death to the estate of such
beneficiary.
``(2) Qualified higher education expenses.--
``(A) In general.--The term `qualified
higher education expenses' has the meaning
given such term by section 529(e)(3), reduced
as provided in section 25A(g)(2).
``(B) Qualified state tuition programs.--
Such term shall include amounts paid or
incurred to purchase tuition credits or
certificates, or to make contributions to an
account, under a qualified State tuition
program (as defined in section 529(b)) for the
benefit of the beneficiary of the account.
``(3) Eligible educational institution.--The term
`eligible educational institution' has the meaning
given such term by section 529(e)(5).
``(c) Reduction in Permitted Contributions Based on
Adjusted Gross Income.--
``(1) In general.--The maximum amount which a
contributor could otherwise make to an account under
this section shall be reduced by an amount which bears
the same ratio to such maximum amount as--
``(A) the excess of--
``(i) the contributor's modified
adjusted gross income for such taxable
year, over
``(ii) $95,000 ($150,000 in the
case of a joint return), bears to
``(B) $15,000 ($10,000 in the case of a
joint return).
``(2) Modified adjusted gross income.--For purposes
of paragraph (1), the term `modified adjusted gross
income' means the adjusted gross income of the taxpayer
for the taxable year increased by any amount excluded
from gross income under section 911, 931, or 933.
``(d) Tax Treatment of Distributions.--
``(1) In general.--Any distribution shall be
includible in the gross income of the distributee in
the manner as provided in section 72(b).
``(2) Distributions for qualified higher education
expenses.--
``(A) In general.--No amount shall be
includible in gross income under paragraph (1)
if the qualified higher education expenses of
the designated beneficiary during the taxable
year are not less than the aggregate
distributions during the taxable year.
``(B) Distributions in excess of
expenses.--If such aggregate distributions
exceed such expenses during the taxable year,
the amount otherwise includible in gross income
under paragraph (1) shall be reduced by the
amount which bears the same ratio to the amount
which would be includible in gross income under
paragraph (1) (without regard to this
subparagraph) as the qualified higher education
expenses bear to such aggregate distributions.
``(C) Election to waive exclusion.--A
taxpayer may elect to waive the application of
this paragraph for any taxable year.
``(3) Special rules for applying estate and gift
taxes with respect to account.--Rules similar to the
rules of paragraphs (2), (4), and (5) of section 529(c)
shall apply for purposes of this section.
``(4) Additional tax for distributions not used for
educational expenses.--
``(A) In general.--The tax imposed by this
chapter for any taxable year on any taxpayer
who receives a payment or distribution from an
education individual retirement account which
is includible in gross income shall be
increased by 10 percent of the amount which is
so includible.
``(B) Exceptions.--Subparagraph (A) shall
not apply if the payment or distribution is--
``(i) made to a beneficiary (or to
the estate of the designated
beneficiary) on or after the death of
the designated beneficiary,
``(ii) attributable to the
designated beneficiary's being disabled
(within the meaning of section
72(m)(7)), or
``(iii) made on account of a
scholarship, allowance, or payment
described in section 25A(g)(2) received
by the account holder to the extent the
amount of the payment or distribution
does not exceed the amount of the
scholarship, allowance, or payment.
``(C) Excess contributions returned before
due date of return.--Subparagraph (A) shall not
apply to the distribution of any contribution
made during a taxable year on behalf of a
designated beneficiary to the extent that such
contribution exceeds $500 if--
``(i) such distribution is received
on or before the day prescribed by law
(including extensions of time) for
filing such contributor's return for
such taxable year, and
``(ii) such distribution is
accompanied by the amount of net income
attributable to such excess
contribution.
Any net income described in clause (ii) shall
be included in gross income for the taxable
year in which such excess contribution was
made.
``(5) Rollover contributions.--Paragraph (1) shall
not apply to any amount paid or distributed from an
education individual retirement account to the extent
that the amount received is paid into another education
individual retirement account for the benefit of the
same beneficiary or a member of the family (within the
meaning of section 529(e)(2)) of such beneficiary not
later than the 60th day after the date of such payment
or distribution. The preceding sentence shall not apply
to any payment or distribution if it applied to any
prior payment or distribution during the 12-month
period ending on the date of the payment or
distribution.
``(6) Change in beneficiary.--Any change in the
beneficiary of an education individual retirement
account shall not be treated as a distribution for
purposes of paragraph (1) if the new beneficiary is a
member of the family (as so defined) of the old
beneficiary.
``(7) Special rules for death and divorce.--Rules
similar to the rules of paragraphs (7) and (8) of
section 220(f) shall apply.
``(e) Tax Treatment of Accounts.--Rules similar to the
rules of paragraphs (2) and (4) of section 408(e) shall apply
to any education individual retirement account.
``(f) Community Property Laws.--This section shall be
applied without regard to any community property laws.
``(g) Custodial Accounts.--For purposes of this section, a
custodial account shall be treated as a trust if the assets of
such account are held by a bank (as defined in section 408(n))
or another person who demonstrates, to the satisfaction of the
Secretary, that the manner in which he will administer the
account will be consistent with the requirements of this
section, and if the custodial account would, except for the
fact that it is not a trust, constitute an account described in
subsection (b)(1). For purposes of this title, in the case of a
custodial account treated as a trust by reason of the preceding
sentence, the custodian of such account shall be treated as the
trustee thereof.
``(h) Reports.--The trustee of an education individual
retirement account shall make such reports regarding such
account to the Secretary and to the beneficiary of the account
with respect to contributions, distributions, and such other
matters as the Secretary may require. The reports required by
this subsection shall be filed at such time and in such manner
and furnished to such individuals at such time and in such
manner as may be required.''.
(b) Tax on Prohibited Transactions.--
(1) In general.--Paragraph (1) of section 4975(e)
(relating to prohibited transactions) is amended by
striking ``or'' at the end of subparagraph (D), by
redesignating subparagraph (E) as subparagraph (F), and
by inserting after subparagraph (D) the following new
subparagraph:
``(E) an education individual retirement
account described in section 530, or''.
(2) Special rule.--Subsection (c) of section 4975
is amended by adding at the end of subsection (c) the
following new paragraph:
``(5) Special rule for education individual
retirement accounts.--An individual for whose benefit
an education individual retirement account is
established and any contributor to such account shall
be exempt from the tax imposed by this section with
respect to any transaction concerning such account
(which would otherwise be taxable under this section)
if section 530(d) applies with respect to such
transaction.''.
(c) Failure To Provide Reports on Education Individual
Retirement Accounts.--Paragraph (2) of section 6693(a)
(relating to failure to provide reports on individual
retirement accounts or annuities) is amended by striking
``and'' at the end of subparagraph (B), by striking the period
at the end of subparagraph (C) and inserting ``, and'', and by
adding at the end the following new subparagraph:
``(D) Section 530(h) (relating to education
individual retirement accounts).''.
(d) Tax on Excess Contributions.--
(1) In general.--Subsection (a) of section 4973 is
amended by striking ``or'' at the end of paragraph (2),
by adding ``or'' at the end of paragraph (3), and by
inserting after paragraph (3) the following new
paragraph:
``(4) an education individual retirement account
(as defined in section 530),''.
(2) Excess contributions defined.--Section 4973 is
amended by adding at the end the following new
subsection:
``(e) Excess Contributions to Education Individual
Retirement Accounts.--For purposes of this section--
``(1) In general.--In the case of education
individual retirement accounts maintained for the
benefit of any 1 beneficiary, the term `excess
contributions' means--
``(A) the amount by which the amount
contributed for the taxable year to such
accounts exceeds $500, and
``(B) any amount contributed to such
accounts for any taxable year if any amount is
contributed during such year to a qualified
State tuition program for the benefit of such
beneficiary.
``(2) Special rules.--For purposes of paragraph
(1), the following contributions shall not be taken
into account:
``(A) Any contribution which is distributed
out of the education individual retirement
account in a distribution to which section
530(d)(4)(C) applies.
``(B) Any contribution described in section
530(b)(2)(B) to a qualified State tuition
program.
``(C) Any rollover contribution.''.
(e) Technical Amendments.--
(1) Section 26(b)(2) is amended by redesignating
subparagraphs (E) through (P) as subparagraphs (F)
through (Q), respectively, and by inserting after
subparagraph (D) the following new subparagraph:
``(E) section 530(d)(3) (relating to
additional tax on certain distributions from
education individual retirement accounts),''.
(2) Subparagraph (C) of section 135(c)(2), as added
by the preceding section, is amended by inserting ``,
or to an education individual retirement account (as
defined in section 530) on behalf of an account
beneficiary,'' after ``(as defined in such section)''.
(3) The table of sections for part VIII of
subchapter F of chapter 1 is amended by adding at the
end the following new item:
``Sec. 530. Education individual retirement accounts.''.
(f) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
Subtitle C--Other Education Initiatives
SEC. 221. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL
ASSISTANCE.
(a) In General.--Subsection (d) of section 127 (relating to
educational assistance programs) is amended to read as follows:
``(d) Termination.--This section shall not apply to
expenses paid with respect to courses beginning after May 31,
2000.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1996.
SEC. 222. REPEAL OF LIMITATION ON QUALIFIED 501(C)(3) BONDS OTHER THAN
HOSPITAL BONDS.
Section 145(b) (relating to qualified 501(c)(3) bond) is
amended by adding at the end the following new paragraph:
``(5) Termination of limitation.--This subsection
shall not apply with respect to bonds issued after the
date of the enactment of this paragraph as part of an
issue 95 percent or more of the net proceeds of which
are to be used to finance capital expenditures incurred
after such date.''.
SEC. 223. INCREASE IN ARBITRAGE REBATE EXCEPTION FOR GOVERNMENTAL BONDS
USED TO FINANCE EDUCATION FACILITIES.
(a) In General.--Section 148(f)(4)(D) (relating to
exception for governmental units issuing $5,000,000 or less of
bonds) is amended by adding at the end the following new
clause:
``(vii) Increase in exception for
bonds financing public school capital
expenditures.--Each of the $5,000,000
amounts in the preceding provisions of
this subparagraph shall be increased by
the lesser of $5,000,000 or so much of
the aggregate face amount of the bonds
as are attributable to financing the
construction (within the meaning of
subparagraph (C)(iv)) of public school
facilities.''.
(b) Effective Date.--The amendments made by this section
shall apply to bonds issued after December 31, 1997.
SEC. 224. CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT FOR
ELEMENTARY OR SECONDARY SCHOOL PURPOSES.
(a) Contributions of Computer Technology and Equipment for
Elementary or Secondary School Purposes.--Subsection (e) of
section 170 is amended by adding at the end the following new
paragraph:
``(6) Special rule for contributions of computer
technology and equipment for elementary or secondary
school purposes.--
``(A) Limit on reduction.--In the case of a
qualified elementary or secondary educational
contribution, the reduction under paragraph
(1)(A) shall be no greater than the amount
determined under paragraph (3)(B).
``(B) Qualified elementary or secondary
educational contribution.--For purposes of this
paragraph, the term `qualified elementary or
secondary educational contribution' means a
charitable contribution by a corporation of any
computer technology or equipment, but only if--
``(i) the contribution is to--
``(I) an educational
organization described in
subsection (b)(1)(A)(ii), or
``(II) an entity described
in section 501(c)(3) and exempt
from tax under section 501(a)
(other than an entity described
in subclause (I)) that is
organized primarily for
purposes of supporting
elementary and secondary
education,
``(ii) the contribution is made not
later than 2 years after the date the
taxpayer acquired the property (or in
the case of property constructed by the
taxpayer,the date the construction of
the property is substantially completed),
``(iii) the original use of the
property is by the donor or the donee,
``(iv) substantially all of the use
of the property by the donee is for use
within the United States for
educational purposes in any of the
grades K-12 that are related to the
purpose or function of the organization
or entity,
``(v) the property is not
transferred by the donee in exchange
for money, other property, or services,
except for shipping, installation and
transfer costs,
``(vi) the property will fit
productively into the entity's
education plan, and
``(vii) the entity's use and
disposition of the property will be in
accordance with the provisions of
clauses (iv) and (v).
``(C) Contribution to private foundation.--
A contribution by a corporation of any computer
technology or equipment to a private foundation
(as defined in section 509) shall be treated as
a qualified elementary or secondary educational
contribution for purposes of this paragraph
if--
``(i) the contribution to the
private foundation satisfies the
requirements of clauses (ii) and (v) of
subparagraph (B), and
``(ii) within 30 days after such
contribution, the private foundation--
``(I) contributes the
property to an entity described
in clause (i) of subparagraph
(B) that satisfies the
requirements of clauses (iv)
through (vii) of subparagraph
(B), and
``(II) notifies the donor
of such contribution.
``(D) Special rule relating to construction
of property.--For the purposes of this
paragraph, the rules of paragraph (4)(C) shall
apply.
``(E) Definitions.--For the purposes of
this paragraph--
``(i) Computer technology or
equipment.--The term `computer
technology or equipment' means computer
software (as defined by section
197(e)(3)(B)), computer or peripheral
equipment (as defined by section
168(i)(2)(B)), and fiber optic cable
related to computer use.
``(ii) Corporation.--The term
`corporation' has the meaning given to
such term by paragraph (4)(D).
``(F) Termination.--This paragraph shall
not apply to any contribution made during any
taxable year beginning after December 31,
1999.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 225. TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS.
(a) Certain Loans by Exempt Organizations.--
(1) In general.--Paragraph (2) of section 108(f)
(defining student loan) is amended by striking ``or''
at the end of subparagraph (B) and by striking
subparagraph (D) and inserting the following:
``(D) any educational organization
described in section 170(b)(1)(A)(ii) if such
loan is made--
``(i) pursuant to an agreement with
any entity described in subparagraph
(A), (B), or (C) under which the funds
from which the loan was made were
provided to such educational
organization, or
``(ii) pursuant to a program of
such educational organization which is
designed to encourage its students to
serve in occupations with unmet needs
or in areas with unmet needs and under
which the services provided by the
students (or former students) are for
or under the direction of a
governmental unit or an organization
described in section 501(c)(3) and
exempt from tax under section 501(a).
The term `student loan' includes any loan made by an
educational organization so described or by an
organization exempt from tax under section 501(a) to
refinance a loan meeting the requirements of the
preceding sentence.''.
(2) Exception for discharges on account of services
performed for certain lenders.--Subsection (f) of
section 108 is amended by adding at the end the
following new paragraph:
``(3) Exception for discharges on account of
services performed for certain lenders.--Paragraph (1)
shall not apply to the discharge of a loan made by an
organization described in paragraph (2)(D) (or by an
organization described in paragraph (2)(E) from funds
provided by an organization described in paragraph
(2)(D)) if the discharge is on account of services
performed for either such organization.''.
(b) Effective Date.--The amendments made by this section
shall apply to discharges of indebtedness after the date of the
enactment of this Act.
SEC. 226. INCENTIVES FOR EDUCATION ZONES.
(a) In General.--Subchapter U of chapter 1 (relating to
additional incentives for empowerment zones) is amended by
redesignating part IV as part V, by redesignating section 1397E
as section 1397F, and by inserting after part III the following
new part:
``PART IV--INCENTIVES FOR EDUCATION ZONES
``Sec. 1397E. Credit to holders of qualified zone academy
bonds.''
``SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY BONDS.
``(a) Allowance of Credit.--In the case of an eligible
taxpayer who holds a qualified zone academy bond on the credit
allowance date of such bond which occurs during the taxable
year, there shall be allowed as a credit against the tax
imposed by this chapter for such taxable year the amount
determined under subsection (b).
``(b) Amount of Credit.--
``(1) In general.--The amount of the credit
determined under this subsection with respect to any
qualified zone academy bond is the amount equal to the
product of--
``(A) the credit rate determined by the
Secretary under paragraph (2) for the month in
which such bond was issued, multiplied by
``(B) the face amount of the bond held by
the taxpayer on the credit allowance date.
``(2) Determination.--During each calendar month,
the Secretary shall determine a credit rate which shall
apply to bonds issued during the following calendar
month. The credit rate for any month is the percentage
which the Secretary estimates will permit the issuance
of qualified zone academy bonds without discount and
without interest cost to the issuer.
``(c) Limitation Based on Amount of Tax.--The credit
allowed under subsection (a) for any taxable year shall not
exceed the excess of--
``(1) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(2) the sum of the credits allowable under part
IV of subchapter A (other than subpart C thereof,
relating to refundable credits).
``(d) Qualified Zone Academy Bond.--For purposes of this
section--
``(1) In general.--The term `qualified zone academy
bond' means any bond issued as part of an issue if--
``(A) 95 percent or more of the proceeds of
such issue are to be used for a qualified
purpose with respect to a qualified zone
academy established by an eligible local
education agency,
``(B) the bond is issued by a State or
local government within the jurisdiction of
which such academy is located,
``(C) the issuer--
``(i) designates such bond for
purposes of this section,
``(ii) certifies that it has
written assurances that the private
business contribution requirement of
paragraph (2) will be met with respect
to such academy, and
``(iii) certifies that it has the
written approval of the eligible local
education agency for such bond
issuance, and
``(D) the term of each bond which is part
of such issue does not exceed the maximum term
permitted under paragraph (3).
``(2) Private business contribution requirement.--
``(A) In general.--For purposes of
paragraph (1), the private business
contribution requirement of this paragraph is
met with respect to any issue if the eligible
local education agency that established the
qualified zone academy has written commitments
from private entities to make qualified
contributions having a present value (as of the
date of issuance of the issue) of not less than
10 percent of the proceeds of the issue.
``(B) Qualified contributions.--For
purposes of subparagraph (A), the term
`qualified contribution' means any contribution
(of a type and quality acceptable to the
eligible local education agency) of--
``(i) equipment for use in the
qualified zone academy (including
state-of-the-art technology and
vocational equipment),
``(ii) technical assistance in
developing curriculum or in training
teachers in order to promote
appropriate market driven technology in
the classroom,
``(iii) services of employees as
volunteer mentors,
``(iv) internships, field trips, or
other educational opportunities outside
the academy for students, or
``(v) any other property or service
specified by the eligible local
education agency.
``(3) Term requirement.--During each calendar
month, the Secretary shall determine the maximum term
permitted under this paragraph for bonds issued during
the following calendar month. Such maximum term shall
be the term which the Secretary estimates will result
in the present value of the obligation to repay the
principal on the bond being equal to 50 percent of the
face amount of the bond. Such present value shall be
determined using as a discount rate the average annual
interest rate of tax-exempt obligations having a term
of 10 years or more which are issued during the month.
If the term as so determined is not a multiple of a
whole year, such term shall be rounded to the next
highest whole year.
``(4) Qualified zone academy.--
``(A) In general.--The term `qualified zone
academy' means any public school (or academic
program within a public school) which is
established by and operated under the
supervision of an eligible local education
agency to provide education or training below
the postsecondary level if--
``(i) such public school or program
(as the case may be) is designed in
cooperation with business to enhance
the academic curriculum, increase
graduation and employment rates, and
better prepare students for the rigors
of college and the increasingly complex
workforce,
``(ii) students in such public
school or program (as the case may be)
will be subject to the same academic
standards and assessments as other
students educated by the eligible local
education agency,
``(iii) the comprehensive education
plan of such public school or program
is approved by the eligible local
education agency, and
``(iv)(I) such public school is
located in an empowerment zone or
enterprise community (including any
such zone or community designated after
the date of the enactment of this
section), or
``(II) there is a reasonable
expectation (as of the date of issuance
of the bonds) that at least 35 percent
of the students attending such school
or participating in such program (as
the case may be) will be eligible for
free or reduced-cost lunches under the
school lunch program established under
the National School Lunch Act.
``(B) Eligible local education agency.--The
term `eligible local education agency' means
any local education agency as defined in
section 14101 of the Elementary and Secondary
Education Act of 1965.
``(5) Qualified purpose.--The term `qualified
purpose' means, with respect to any qualified zone
academy--
``(A) rehabilitating or repairing the
public school facility in which the academy is
established,
``(B) providing equipment for use at such
academy,
``(C) developing course materials for
education to be provided at such academy, and
``(D) training teachers and other school
personnel in such academy.
``(6) Eligible taxpayer.--The term `eligible
taxpayer' means--
``(A) a bank (within the meaning of section
581),
``(B) an insurance company to which
subchapter L applies, and
``(C) a corporation actively engaged in the
business of lending money.
``(e) Limitation on Amount of Bonds Designated.--
``(1) National limitation.--There is a national
zone academy bond limitation for each calendar year.
Such limitation is $400,000,000 for 1998 and 1999, and,
except as provided in paragraph (4), zero thereafter.
``(2) Allocation of limitation.--The national zone
academy bond limitation for a calendar year shall be
allocated by the Secretary among the States on the
basis of their respective populations of individuals
below the poverty line (as defined by the Office of
Management and Budget). The limitation amount allocated
to a State under the preceding sentence shall be
allocated by the State education agency to qualified
zone academies within such State.
``(3) Designation subject to limitation amount.--
The maximum aggregate face amount of bonds issued
during any calendar year which may be designated under
subsection (d)(1) with respect to any qualified zone
academy shall not exceed the limitation amount
allocated to such academy under paragraph (2) for such
calendar year.
``(4) Carryover of unused limitation.--If for any
calendar year--
``(A) the limitation amount for any State,
exceeds
``(B) the amount of bonds issued during
such year which are designated under subsection
(d)(1) with respect to qualified zone academies
within such State,
the limitation amount for such State for the following
calendar year shall be increased by the amount of such
excess.
``(f) Other Definitions.--For purposes of this section--
``(1) Credit allowance date.--The term `credit
allowance date' means, with respect to any issue, the
last day of the 1-year period beginning on the date of
issuance of such issue and the last day of each
successive 1-year period thereafter.
``(2) Bond.--The term `bond' includes any
obligation.
``(3) State.--The term `State' includes the
District of Columbia and any possession of the United
States.
``(g) Credit Included in Gross Income.--Gross income
includes the amount of the credit allowed to the taxpayer under
this section.''
(b) Conforming Amendments.--
(1) The table of parts for subchapter U of chapter
1 is amended by striking the last item and inserting
the following:
``Part IV. Incentives for education zones.
``Part V. Regulations.''
(2) The table of sections for part V, as so
redesignated, is amended to read as follows:
``Sec. 1397F. Regulations.''
(c) Effective Date.--The amendments made by this section
shall apply to obligations issued after December 31, 1997.
TITLE III--SAVINGS AND INVESTMENT INCENTIVES
Subtitle A--Retirement Savings
SEC. 301. RESTORATION OF IRA DEDUCTION FOR CERTAIN TAXPAYERS.
(a) Increase in Income Limits Applicable to Active
Participants.--
(1) In general.--Subparagraph (B) of section
219(g)(3) (relating to applicable dollar amount) is
amended to read as follows:
``(B) Applicable dollar amount.--The term
`applicable dollar amount' means the following:
``(i) In the case of a taxpayer
filing a joint return:
``For taxable years be- The applicable
ginning in: dollar amount is:
1998...................................................... $50,000
1999...................................................... $51,000
2000...................................................... $52,000
2001...................................................... $53,000
2002...................................................... $54,000
2003...................................................... $60,000
2004...................................................... $65,000
2005...................................................... $70,000
2006...................................................... $75,000
2007 and thereafter....................................... $80,000.
``(ii) In the case of any other
taxpayer (other than a married
individual filing a separate return):
``For taxable years be- The applicable
ginning in: dollar amount is:
1998...................................................... $30,000
1999...................................................... $31,000
2000...................................................... $32,000
2001...................................................... $33,000
2002...................................................... $34,000
2003...................................................... $40,000
2004...................................................... $45,000
2005 and thereafter....................................... $50,000.
``(iii) In the case of a married
individual filing a separate return,
zero.''.
(2) Increase in phase-out range for joint
returns.--Clause (ii) of section 219(g)(2)(A) is
amended by inserting ``($20,000 in the case of a joint
return for a taxable year beginning after December 31,
2006)''.
(b) Limitations for Active Participation Not Based on
Spouse's Participation.--Section 219(g) (relating to limitation
on deduction for active participants in certain pension plans)
is amended--
(1) by striking ``or the individual's spouse'' in
paragraph (1), and
(2) by adding at the end the following new
paragraph:
``(7) Special rule for certain spouses.--In the
case of an individual who is an active participant at
no time during any plan year ending with or within the
taxable year but whose spouse is an active participant
for any part of any such plan year--
``(A) the applicable dollar amount under
paragraph (3)(B)(i) with respect to the
taxpayer shall be $150,000, and
``(B) the amount applicable under paragraph
(2)(A)(ii) shall be $10,000.''
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 302. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE INDIVIDUAL RETIREMENT
ACCOUNTS.
(a) In General.--Subpart A of part I of subchapter D of
chapter 1 (relating to pension, profit-sharing, stock bonus
plans, etc.) is amended by inserting after section 408 the
following new section:
``SEC. 408A. ROTH IRAS.
``(a) General Rule.--Except as provided in this section, a
Roth IRA shall be treated for purposes of this title in the
same manner as an individual retirement plan.
``(b) Roth IRA.--For purposes of this title, the term `Roth
IRA' means an individual retirement plan (as defined in section
7701(a)(37)) which is designated (in such manner as the
Secretary may prescribe) at the time of establishment of the
plan as a Roth IRA. Such designation shall be made in such
manner as the Secretary may prescribe.
``(c) Treatment of Contributions.--
``(1) No deduction allowed.--No deduction shall be
allowed under section 219 for a contribution to a Roth
IRA.
``(2) Contribution limit.--The aggregate amount of
contributions for any taxable year to all Roth IRAs
maintained for the benefit of an individual shall not
exceed the excess (if any) of--
``(A) the maximum amount allowable as a
deduction under section 219 with respect to
such individual for such taxable year (computed
without regard to subsection (d)(1) or (g) of
such section), over
``(B) the aggregate amount of contributions
for such taxable year to all other individual
retirement plans (other than Roth IRAs)
maintained for the benefit of the individual.
``(3) Limits based on modified adjusted gross
income.--
``(A) Dollar limit.--The amount determined
under paragraph (2) for any taxable year shall
be reduced (but not below zero) by the amount
which bears the same ratio to such amount as--
``(i) the excess of--
``(I) the taxpayer's
adjusted gross income for such
taxable year, over
``(II) the applicable
dollar amount, bears to
``(ii) $15,000 ($10,000 in the case
of a joint return).
The rules of subparagraphs (B) and (C) of
section 219(g)(2) shall apply to any reduction
under this subparagraph.
``(B) Rollover from ira.--A taxpayer shall
not be allowed to make a qualified rollover
contribution to a Roth IRA from an individual
retirement plan other than a Roth IRA during
any taxable year if--
``(i) the taxpayer's adjusted gross
income for such taxable year exceeds
$100,000, or
``(ii) the taxpayer is a married
individual filing a separate return.
``(C) Definitions.--For purposes of this
paragraph--
``(i) adjusted gross income shall
be determined in the same manner as
under section 219(g)(3), except that
any amount included in gross income
under subsection (d)(3) shall not be
taken into account and the deduction
under section 219 shall be taken into
account, and
``(ii) the applicable dollar amount
is--
``(I) in the case of a
taxpayer filing a joint return,
$150,000,
``(II) in the case of any
other taxpayer (other than a
married individual filing a
separate return), $95,000, and
``(III) in the case of a
married individual filing a
separate return, zero.
``(D) Marital status.--Section 219(g)(4)
shall apply for purposes of this paragraph.
``(4) Contributions permitted after age 70\1/2\.--
Contributions to a Roth IRA may be made even after the
individual for whom the account is maintained has
attained age 70\1/2\.
``(5) Mandatory distribution rules not to apply
before death.--Notwithstanding subsections (a)(6) and
(b)(3) of section 408 (relating torequired
distributions), the following provisions shall not apply to any Roth
IRA:
``(A) Section 401(a)(9)(A).
``(B) The incidental death benefit
requirements of section 401(a).
``(6) Rollover contributions.--
``(A) In general.--No rollover contribution
may be made to a Roth IRA unless it is a
qualified rollover contribution.
``(B) Coordination with limit.--A qualified
rollover contribution shall not be taken into
account for purposes of paragraph (2).
``(7) Time when contributions made.--For purposes
of this section, the rule of section 219(f)(3) shall
apply.
``(d) Distribution Rules.--For purposes of this title--
``(1) General rules.--
``(A) Exclusions from gross income.--Any
qualified distribution from a Roth IRA shall
not be includible in gross income.
``(B) Nonqualified distributions.--In
applying section 72 to any distribution from a
Roth IRA which is not a qualified distribution,
such distribution shall be treated as made from
contributions to the Roth IRA to the extent
that such distribution, when added to all
previous distributions from the Roth IRA, does
not exceed the aggregate amount of
contributions to the Roth IRA.
``(2) Qualified distribution.--For purposes of this
subsection--
``(A) In general.--The term `qualified
distribution' means any payment or
distribution--
``(i) made on or after the date on
which the individual attains age 59\1/
2\,
``(ii) made to a beneficiary (or to
the estate of the individual) on or
after the death of the individual,
``(iii) attributable to the
individual's being disabled (within the
meaning of section 72(m)(7)), or
``(iv) which is a qualified special
purpose distribution.
``(B) Certain distributions within 5
years.--A payment or distribution shall not be
treated as a qualified distribution under
subparagraph (A) if--
``(i) it is made within the 5-
taxable year period beginning with the
1st taxable year for which the
individual made a contribution to a
Roth IRA (or such individual's spouse
made a contribution to a Roth IRA)
established for such individual, or
``(ii) in the case of a payment or
distribution properly allocable (as
determined in the manner prescribed by
the Secretary) to a qualified rollover
contribution from an individual
retirement plan other than a Roth IRA
(or income allocable thereto), it is
made within the 5-taxable year period
beginning with the taxable year in
which the rollover contribution was
made.
``(3) Rollovers from an ira other than a roth
ira.--
``(A) In general.--Notwithstanding section
408(d)(3), in the case of any distribution to
which this paragraph applies--
``(i) there shall be included in
gross income any amount which would be
includible were it not part of a
qualified rollover contribution,
``(ii) section 72(t) shall not
apply, and
``(iii) in the case of a
distribution before January 1, 1999,
any amount required to be included in
gross income by reason of this
paragraph shall be so included ratably
over the 4-taxable year period
beginning with the taxable year in
which the payment or distribution is
made.
``(B) Distributions to which paragraph
applies.--This paragraph shall apply to a
distribution from an individual retirement plan
(other than a Roth IRA) maintained for the
benefit of an individual which is contributed
to a Roth IRA maintained for the benefit of
such individual in a qualified rollover
contribution.
``(C) Conversions.--The conversion of an
individual retirement plan (other than a Roth
IRA) to a Roth IRA shall be treated for
purposes of this paragraph as a distribution to
which this paragraph applies.
``(D) Conversion of excess contributions.--
If, no later than the due date for filing the
return of tax for any taxable year (without
regard to extensions), an individual transfers,
from an individual retirement plan (other than
a Roth IRA), contributions for such taxable
year (and any earnings allocable thereto) to a
Roth IRA, no such amount shall be includible in
gross income to the extent no deduction was
allowed with respect to such amount.
``(E) Additional reporting requirements.--
Trustees of Roth IRAs, trustees of individual
retirement plans, or both, whichever is
appropriate, shall include such additional
information in reports required under section
408(i) as the Secretary may require to ensure
that amounts required to be included in gross
income under subparagraph (A) are so included.
``(4) Coordination with individual retirement
accounts.--Section 408(d)(2) shall be applied
separately with respect to Roth IRAs and other
individual retirement plans.
``(5) Qualified special purpose distribution.--For
purposes of this section, the term `qualified special
purpose distribution' means any distribution to which
subparagraph (F) of section 72(t)(2) applies.
``(e) Qualified Rollover Contribution.--For purposes of
this section, the term `qualified rollover contribution' means
a rollover contribution to a Roth IRAfrom another such account,
or from an individual retirement plan, but only if such rollover
contribution meets the requirements of section 408(d)(3). For purposes
of section 408(d)(3)(B), there shall be disregarded any qualified
rollover contribution from an individual retirement plan (other than a
Roth IRA) to a Roth IRA.''.
(b) Excess Contributions.--Section 4973(b), as amended by
title II, is amended by adding at the end the following new
subsection:
``(f) Excess Contributions to Roth IRAs.--For purposes of
this section, in the case of contributions to a Roth IRA
(within the meaning of section 408A(b)), the term `excess
contributions' means the sum of--
``(1) the excess (if any) of--
``(A) the amount contributed for the
taxable year to such accounts (other than a
qualified rollover contribution described in
section 408A(e)), over
``(B) the amount allowable as a
contribution under sections 408A (c)(2) and
(c)(3), and
``(2) the amount determined under this subsection
for the preceding taxable year, reduced by the sum of--
``(A) the distributions out of the accounts
for the taxable year, and
``(B) the excess (if any) of the maximum
amount allowable as a contribution under
sections 408A (c)(2) and (c)(3) for the taxable
year over the amount contributed to the
accounts for the taxable year.
For purposes of this subsection, any contribution which is
distributed from a Roth IRA in a distribution described in
section 408(d)(4) shall be treated as an amount not
contributed.''
(c) Spousal IRA.--Clause (ii) of section 219(c)(1)(B) is
amended to read as follows:
``(ii) the compensation includible
in the gross income of such
individual's spouse for the taxable
year reduced by--
``(I) the amount allowed as
a deduction under subsection
(a) to such spouse for such
taxable year, and
``(II) the amount of any
contribution on behalf of such
spouse to a Roth IRA under
section 408A for such taxable
year.''.
(d) Authority To Prescribe Necessary Reporting.--Section
408(i) is amended--
(1) by striking ``under regulations'', and
(2) by striking ``in such regulations'' each place
it appears.
(e) Conforming Amendment.--The table of sections for
subpart A of part I of subchapter D of chapter 1 is amended by
inserting after the item relating to section 408 the following
new item:
``Sec. 408A. Roth IRAs.''.
(f) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 303. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY
TO PURCHASE FIRST HOMES.
(a) In General.--Paragraph (2) of section 72(t) (relating
to exceptions to 10-percent additional tax on early
distributions from qualified retirement plans), as amended by
section 203, is amended by adding at the end the following new
subparagraph:
``(F) Distributions from certain plans for
first home purchases.--Distributions to an
individual from an individual retirement plan
which are qualified first-time homebuyer
distributions (as defined in paragraph (8)).
Distributions shall not be taken into account
under the preceding sentence if such
distributions are described in subparagraph
(A),(C), (D), or (E) or to the extent paragraph
(1) does not apply to such distributions by reason of subparagraph
(B).''.
(b) Definitions.--Section 72(t), as amended by section 203,
is amended by adding at the end the following new paragraphs:
``(8) Qualified first-time homebuyer
distributions.--For purposes of paragraph (2)(F)--
``(A) In general.--The term `qualified
first-time homebuyer distribution' means any
payment or distribution received by an
individual to the extent such payment or
distribution is used by the individual before
the close of the 120th day after the day on
which such payment or distribution is received
to pay qualified acquisition costs with respect
to a principal residence of a first-time
homebuyer who is such individual, the spouse of
such individual, or any child, grandchild, or
ancestor of such individual or the individual's
spouse.
``(B) Lifetime dollar limitation.--The
aggregate amount of payments or distributions
received by an individual which may be treated
as qualified first-time homebuyer distributions
for any taxable year shall not exceed the
excess (if any) of--
``(i) $10,000, over
``(ii) the aggregate amounts
treated as qualified first-time
homebuyer distributions with respect to
such individual for all prior taxable
years.
``(C) Qualified acquisition costs.--For
purposes of this paragraph, the term `qualified
acquisition costs' means the costs of
acquiring, constructing, or reconstructing a
residence. Such term includes any usual or
reasonable settlement, financing, or other
closing costs.
``(D) First-time homebuyer; other
definitions.--For purposes of this paragraph--
``(i) First-time homebuyer.--The
term `first-time homebuyer' means any
individual if--
``(I) such individual (and
if married, such individual's
spouse) had no present
ownership interest in a
principal residence during the
2-year period ending on the
date of acquisition of the
principal residence to which
this paragraph applies, and
``(II) subsection (h) or
(k) of section 1034 (as in
effect on the day before the
date of the enactment of this
paragraph) did not suspend the
running of any period of time
specified in section 1034 (as
so in effect) with respect to
such individual on the day
before the date the
distribution is applied
pursuant to subparagraph (A).
``(ii) Principal residence.--The
term `principal residence' has the same
meaning as when used in section 121.
``(iii) Date of acquisition.--The
term `date of acquisition' means the
date--
``(I) on which a binding
contract to acquire the
principal residence to which
subparagraph (A) applies is
entered into, or
``(II) on which
construction or reconstruction
of such a principal residence
is commenced.
``(E) Special rule where delay in
acquisition.--If any distribution from any
individualretirement plan fails to meet the
requirements of subparagraph (A) solely by reason of a delay or
cancellation of the purchase or construction of the residence, the
amount of the distribution may be contributed to an individual
retirement plan as provided in section 408(d)(3)(A)(i) (determined by
substituting `120 days' for `60 days' in such section), except that--
``(i) section 408(d)(3)(B) shall
not be applied to such contribution,
and
``(ii) such amount shall not be
taken into account in determining
whether section 408(d)(3)(B) applies to
any other amount.''.
(c) Effective Date.--The amendments made by this section
shall apply to payments and distributions in taxable years
beginning after December 31, 1997.
SEC. 304. CERTAIN BULLION NOT TREATED AS COLLECTIBLES.
(a) In General.--Paragraph (3) of section 408(m) (relating
to exception for certain coins) is amended to read as follows:
``(3) Exception for certain coins and bullion.--For
purposes of this subsection, the term `collectible'
shall not include--
``(A) any coin which is--
``(i) a gold coin described in
paragraph (7), (8), (9), or (10) of
section 5112(a) of title 31, United
States Code,
``(ii) a silver coin described in
section 5112(e) of title 31, United
States Code,
``(iii) a platinum coin described
in section 5112(k) of title 31, United
States Code, or
``(iv) a coin issued under the laws
of any State, or
``(B) any gold, silver, platinum, or
palladium bullion of a fineness equal to or
exceeding the minimum fineness that a contract
market (as described in section 7 of the
Commodity Exchange Act, 7 U.S.C. 7) requires
for metals which may be delivered in
satisfaction of a regulated futures contract,
if such bullion is in the physical possession of a
trustee described under subsection (a) of this
section.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
Subtitle B--Capital Gains
SEC. 311. MAXIMUM CAPITAL GAINS RATES FOR INDIVIDUALS.
(a) In General.--Subsection (h) of section 1 (relating to
maximum capital gains rate) is amended to read as follows:
``(h) Maximum Capital Gains Rate.--
``(1) In general.--If a taxpayer has a net capital
gain for any taxable year, the tax imposed by this
section for such taxable year shall not exceed the sum
of--
``(A) a tax computed at the rates and in
the same manner as if this subsection had not
been enacted on the greater of--
``(i) taxable income reduced by the
net capital gain, or
``(ii) the lesser of--
``(I) the amount of taxable
income taxed at a rate below 28
percent, or
``(II) taxable income
reduced by the adjusted net
capital gain, plus
``(B) 25 percent of the excess (if any)
of--
``(i) the unrecaptured section 1250
gain (or, if less, the net capital
gain), over
``(ii) the excess (if any) of--
``(I) the sum of the amount
on which tax is determined
under subparagraph (A) plus the
net capital gain, over
``(II) taxable income, plus
``(C) 28 percent of the amount of taxable
income in excess of the sum of--
``(i) the adjusted net capital
gain, plus
``(ii) the sum of the amounts on
which tax is determined under
subparagraphs (A) and (B), plus
``(D) 10 percent of so much of the
taxpayer's adjusted net capital gain (or, if
less, taxable income) as does not exceed the
excess (if any) of--
``(i) the amount of taxable income
which would (without regard to this
paragraph) be taxed at a rate below 28
percent, over
``(ii) the taxable income reduced
by the adjusted net capital gain, plus
``(E) 20 percent of the taxpayer's adjusted
net capital gain (or, if less, taxable income)
in excess of the amount on which a tax is
determined under subparagraph (D).
``(2) Reduced capital gain rates for qualified 5-
year gain.--
``(A) Reduction in 10-percent rate.--In the
case of any taxable year beginning after
December 31, 2000, the rate under paragraph
(1)(D) shall be 8 percent with respect to so
much of the amount to which the 10-percent rate
would otherwise apply as does not exceed
qualified 5-year gain, and 10 percent with
respect to the remainder of such amount.
``(B) Reduction in 20-percent rate.--The
rate under paragraph (1)(E) shall be 18 percent
with respect to so much of the amount to which
the 20-percent rate would otherwise apply as
does not exceed the lesser of--
``(i) the excess of qualified 5-
year gain over the amount of such gain
taken into account under subparagraph
(A) of this paragraph, or
``(ii) the amount of qualified 5-
year gain (determined by taking into
account only property the holding
period for which begins after December
31, 2000),
and 20 percent with respect to the remainder of
such amount. For purposes of determining under
the preceding sentence whether the holding
period of property begins after December 31,
2000, the holding period of property acquired
pursuant to the exercise of an option (or other
right or obligation to acquire property) shall
include the period such option (or other right
or obligation) was held.
``(3) Net capital gain taken into account as
investment income.--For purposes of this subsection,
the net capital gain for any taxable year shall be
reduced (but not below zero) by the amount which the
taxpayer takes into account as investment income under
section 163(d)(4)(B)(iii).
``(4) Adjusted net capital gain.--For purposes of
this subsection, the term `adjusted net capital gain'
means net capital gain determined without regard to--
``(A) collectibles gain,
``(B) unrecaptured section 1250 gain,
``(C) section 1202 gain, and
``(D) mid-term gain.
``(5) Collectibles gain.--For purposes of this
subsection--
``(A) In general.--The term `collectibles
gain' means gain from the sale or exchange of a
collectible (as defined in section 408(m)
without regard to paragraph (3) thereof) which
is a capital asset held for more than 1 year
but only to the extent such gain is taken into
account in computing gross income.
``(B) Partnerships, etc.--For purposes of
subparagraph (A), any gain from the sale of an
interest in a partnership, S corporation, or
trust which is attributable to unrealized
appreciation in the value of collectibles shall
be treated as gain from the sale or exchange of
a collectible. Rules similar to the rules of
section 751 shall apply for purposes of the
preceding sentence.
``(6) Unrecaptured section 1250 gain.--For purposes
of this subsection--
``(A) In general.--The term `unrecaptured
section 1250 gain' means the amount of long-
term capital gain which would be treated as
ordinary income if--
``(i) section 1250(b)(1) included
all depreciation and the applicable
percentage under section 1250(a) were
100 percent, and
``(ii) in the case of gain properly
taken into account after July 28, 1997,
only gain from section 1250 property
held for more than 18 months were taken
into account.
``(B) Limitation with respect to section
1231 property.--The amount of unrecaptured
section 1250 gain from sales, exchanges, and
conversions described in section 1231(a)(3)(A)
for any taxable year shall not exceed the
excess of the net section 1231 gain (as defined
in section 1231(c)(3)) for such year over the
amount treated as ordinary income under section
1231(c)(1) for such year.
``(C) Pre-may 7, 1997, gain.--In the case
of a taxable year which includes May 7, 1997,
subparagraph (A) shall be applied by taking
into account only the gain properly taken into
account for the portion of the taxable year
after May 6, 1997.
``(7) Section 1202 gain.--For purposes of this
subsection, the term `section 1202 gain' means an
amount equal to the gain excluded from gross income
under section 1202(a).
``(8) Mid-term gain.--For purposes of this
subsection, the term `mid-term gain' means the amount
which would be adjusted net capital gain for the
taxable year if--
``(A) adjusted net capital gain were
determined by taking into account only the gain
or loss properly taken into account after July
28, 1997, from property held for more than 1
year but not more than 18 months, and
``(B) paragraph (3) and section 1212 did
not apply.
``(9) Qualified 5-year gain.--For purposes of this
subsection, the term `qualified 5-year gain' means the
amount of long-term capital gain which would be
computed for the taxable year if only gains from the
sale or exchange of property held by the taxpayer for
more than 5 years were taken into account. The
determination under the preceding sentence shall be
made without regard to collectibles gain, unrecaptured
section 1250 gain (determinedwithout regard to
subparagraph (B) of paragraph (6)), section 1202 gain, or mid-term
gain.
``(10) Pre-effective date gain.--
``(A) In general.--In the case of a taxable
year which includes May 7, 1997, gains and
losses properly taken into account for the
portion of the taxable year before May 7, 1997,
shall be taken into account in determining mid-
term gain as if such gains and losses were
described in paragraph (8)(A).
``(B) Special rules for pass-thru
entities.--In applying subparagraph (A) with
respect to any pass-thru entity, the
determination of when gains and loss are
properly taken into account shall be made at
the entity level.
``(C) Pass-thru entity defined.--For
purposes of subparagraph (B), the term `pass-
thru entity' means--
``(i) a regulated investment
company,
``(ii) a real estate investment
trust,
``(iii) an S corporation,
``(iv) a partnership,
``(v) an estate or trust, and
``(vi) a common trust fund.
``(11) Treatment of pass-thru entities.--The
Secretary may prescribe such regulations as are
appropriate (including regulations requiring reporting)
to apply this subsection in the case of sales and
exchanges by pass-thru entities (as defined in
paragraph (10)(C)) and of interests in such
entities.''.
(b) Minimum Tax.--
(1) In general.--Subsection (b) of section 55 is
amended by adding at the end the following new
paragraph:
``(3) Maximum rate of tax on net capital gain of
noncorporate taxpayers.--The amount determined under
the first sentence of paragraph (1)(A)(i) shall not
exceed the sum of--
``(A) the amount determined under such
first sentence computed at the rates and in the
same manner as if this paragraph had not been
enacted on the taxable excess reduced by the
lesser of--
``(i) the net capital gain, or
``(ii) the sum of--
``(I) the adjusted net
capital gain, plus
``(II) the unrecaptured
section 1250 gain, plus
``(B) 25 percent of the lesser of--
``(i) the unrecaptured section 1250
gain, or
``(ii) the amount of taxable excess
in excess of the sum of--
``(I) the adjusted net
capital gain, plus
``(II) the amount on which
a tax is determined under
subparagraph (A), plus
``(C) 10 percent of so much of the
taxpayer's adjusted net capital gain (or, if
less, taxable excess) as does not exceed the
amount on which a tax is determined under
section 1(h)(1)(D), plus
``(D) 20 percent of the taxpayer's adjusted
net capital gain (or, if less, taxable excess)
in excess of the amount on which tax is
determined under subparagraph (C).
In the case of taxable years beginning after December
31, 2000, rules similar to the rules of section 1(h)(2)
shall apply for purposes of subparagraphs (C) and (D).
Terms used in this paragraph which are also used in
section 1(h) shall have the respective meanings given
such terms by section 1(h).''.
(2) Conforming amendments.--
(A) Clause (ii) of section 55(b)(1)(A) is
amended by striking ``clause (i)'' and
inserting ``this subsection''.
(B) Paragraph (7) of section 57(a) is
amended by striking ``one-half'' and inserting
``42 percent''.
(c) Other Conforming Amendments.--
(1) Paragraph (1) of section 1445(e) is amended by
striking ``28 percent'' and inserting ``20 percent''.
(2) The second sentence of section 7518(g)(6)(A),
and the second sentence of section 607(h)(6)(A) of the
Merchant Marine Act, 1936, are each amended by striking
``28 percent'' and inserting ``20 percent''.
(3) Paragraph (2) of section 904(b) is amended by
adding at the end the following new subparagraph:
``(C) Coordination with capital gains
rates.--The Secretary may by regulations modify
the application of this paragraph and paragraph
(3) to the extent necessary to properly reflect
any capital gain rate differential under
section 1(h) or 1201(a) and the computation of
net capital gain.''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph
(2), the amendments made by this section shall apply to
taxable years ending after May 6, 1997.
(2) Withholding.--The amendment made by subsection
(c)(1) shall apply only to amounts paid after the date
of the enactment of this Act.
(e) Election To Recognize Gain on Assets Held on January 1,
2001.--For purposes of the Internal Revenue Code of 1986--
(1) In general.--A taxpayer other than a
corporation may elect to treat--
(A) any readily tradable stock (which is a
capital asset) held by such taxpayer on January
1, 2001, and not sold before the next business
day after such date, as having been sold on
such next business day for an amount equal to
its closing market price on such next business
day (and as having been reacquired on such next
business day for an amount equal to such
closing market price), and
(B) any other capital asset or property
used in the trade or business (as defined in
section 1231(b) of the Internal Revenue Code of
1986) held by the taxpayer on January 1, 2001,
as having been sold on such date for an amount
equal to its fair market value on such date
(and as having been reacquired on such date for
an amount equal to such fair market value).
(2) Treatment of gain or loss.--
(A) Any gain resulting from an election
under paragraph (1) shall be treated as
received or accrued on the date the asset is
treated as sold under paragraph (1) and shall
be recognized notwithstanding any provision of
the Internal Revenue Code of 1986.
(B) Any loss resulting from an election
under paragraph (1) shall not be allowed for
any taxable year.
(3) Election.--An election under paragraph (1)
shall be made in such manner as the Secretary of the
Treasury or his delegate may prescribe and shall
specify the assets for which such election is made.
Such an election, once made with respect to any asset,
shall be irrevocable.
(4) Readily tradable stock.--For purposes of this
subsection, the term ``readily tradable stock'' means
any stock which, as of January 1, 2001, is readily
tradable on an established securities market or
otherwise.
SEC. 312. EXEMPTION FROM TAX FOR GAIN ON SALE OF PRINCIPAL RESIDENCE.
(a) In General.--Section 121 (relating to one-time
exclusion of gain from sale of principal residence by
individual who has attained age 55) is amended to read as
follows:
``SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.
``(a) Exclusion.--Gross income shall not include gain from
the sale or exchange of property if, during the 5-year period
ending on the date of the sale or exchange, such property has
been owned and used by the taxpayer as the taxpayer's principal
residence for periods aggregating 2 years or more.
``(b) Limitations.--
``(1) In general.--The amount of gain excluded from
gross income under subsection (a) with respect to any
sale or exchange shall not exceed $250,000.
``(2) $500,000 limitation for certain joint
returns.--Paragraph (1) shall be applied by
substituting `$500,000' for `$250,000' if--
``(A) a husband and wife make a joint
return for the taxable year of the sale or
exchange of the property,
``(B) either spouse meets the ownership
requirements of subsection (a) with respect to
such property,
``(C) both spouses meet the use
requirements of subsection (a) with respect to
such property, and
``(D) neither spouse is ineligible for the
benefits of subsection (a) with respect to such
property by reason of paragraph (3).
``(3) Application to only 1 sale or exchange every
2 years.--
``(A) In general.--Subsection (a) shall not
apply to any sale or exchange by the taxpayer
if, during the 2-year period ending on the date
of such sale or exchange, there was any other
sale or exchange by the taxpayer to which
subsection (a) applied.
``(B) Pre-may 7, 1997, sales not taken into
account.--Subparagraph (A) shall be applied
without regard to any sale or exchange before
May 7, 1997.
``(c) Exclusion for Taxpayers Failing To Meet Certain
Requirements.--
``(1) In general.--In the case of a sale or
exchange to which this subsection applies, the
ownership and use requirements of subsection (a) shall
not apply and subsection (b)(3) shall not apply; but
the amount of gain excluded from gross income under
subsection (a) with respect to such sale or exchange
shall not exceed--
``(A) the amount which bears the same ratio
to the amount which would be so excluded under
this section if such requirements had been met,
as
``(B) the shorter of--
``(i) the aggregate periods, during
the 5-year period ending on the date of
such sale or exchange, such property
has been owned and used by the taxpayer
as the taxpayer's principal residence,
or
``(ii) the period after the date of
the most recent prior sale or exchange
by the taxpayer to which subsection (a)
appliedand before the date of such sale
or exchange,
bears to 2 years.
``(2) Sales and exchanges to which subsection
applies.--This subsection shall apply to any sale or
exchange if--
``(A) subsection (a) would not (but for
this subsection) apply to such sale or exchange
by reason of--
``(i) a failure to meet the
ownership and use requirements of
subsection (a), or
``(ii) subsection (b)(3), and
``(B) such sale or exchange is by reason of
a change in place of employment, health, or, to
the extent provided in regulations, unforeseen
circumstances.
``(d) Special Rules.--
``(1) Joint returns.--If a husband and wife make a
joint return for the taxable year of the sale or
exchange of the property, subsections (a) and (c) shall
apply if either spouse meets the ownership and use
requirements of subsection (a) with respect to such
property.
``(2) Property of deceased spouse.--For purposes of
this section, in the case of an unmarried individual
whose spouse is deceased on the date of the sale or
exchange of property, the period such unmarried
individual owned and used such property shall include
the period such deceased spouse owned and used such
property before death.
``(3) Property owned by spouse or former spouse.--
For purposes of this section--
``(A) Property transferred to individual
from spouse or former spouse.--In the case of
an individual holding property transferred to
such individual in a transaction described in
section 1041(a), the period such individual
owns such property shall include the period the
transferor owned the property.
``(B) Property used by former spouse
pursuant to divorce decree, etc.--Solely for
purposes of this section, an individual shall
be treated as using property as such
individual's principal residence during any
period of ownership while such individual's
spouse or former spouse is granted use of the
property under a divorce or separation
instrument (as defined in section 71(b)(2)).
``(4) Tenant-stockholder in cooperative housing
corporation.--For purposes of this section, if the
taxpayer holds stock as a tenant-stockholder (as
defined in section 216) in a cooperative housing
corporation (as defined in such section), then--
``(A) the holding requirements of
subsection (a) shall be applied to the holding
of such stock, and
``(B) the use requirements of subsection
(a) shall be applied to the house or apartment
which the taxpayer was entitled to occupy as
such stockholder.
``(5) Involuntary conversions.--
``(A) In general.--For purposes of this
section, the destruction, theft, seizure,
requisition, or condemnation of property shall
be treated as the sale of such property.
``(B) Application of section 1033.--In
applying section 1033 (relating to involuntary
conversions), the amount realized from the sale
or exchange of property shall be treated as
being the amount determined without regard to
this section, reduced by the amount of gain not
included in gross income pursuant to this
section.
``(C) Property acquired after involuntary
conversion.--If the basis of the property sold
or exchanged is determined (in whole or in
part) under section 1033(b) (relating to basis
of property acquired through involuntary
conversion), then the holding and use by the
taxpayer of the converted property shall be
treated as holding and use by the taxpayer of
the property sold or exchanged.
``(6) Recognition of gain attributable to
depreciation.--Subsection (a) shall not apply to so
much of the gain from the sale of any property as does
not exceed the portion of the depreciation adjustments
(as defined in section 1250(b)(3)) attributable to
periods after May 6, 1997, in respect of such property.
``(7) Determination of use during periods of out-
of-residence care.--In the case of a taxpayer who--
``(A) becomes physically or mentally
incapable of self-care, and
``(B) owns property and uses such property
as the taxpayer's principal residence during
the 5-year period described in subsection (a)
for periods aggregating at least 1 year,
then the taxpayer shall be treated as using such
property as the taxpayer's principal residence during
any time during such 5-year period in which the
taxpayer owns the property and resides in any facility
(including a nursing home) licensed by a State or
political subdivision to care for an individual in the
taxpayer's condition.
``(8) Sales of remainder interests.--For purposes
of this section--
``(A) In general.--At the election of the
taxpayer, this section shall not fail to apply
to the sale or exchange of an interest in a
principal residence by reason of such interest
being a remainder interest in such residence,
but this section shall not apply to any other
interest in such residence which is sold or
exchanged separately.
``(B) Exception for sales to related
parties.--Subparagraph (A) shall not apply to
any sale to, or exchange with, any person who
bears a relationship to the taxpayer which is
described in section 267(b) or 707(b).
``(e) Denial of Exclusion for Expatriates.--This section
shall not apply to any sale or exchange by an individual if the
treatment provided by section 877(a)(1) applies to such
individual.
``(f) Election To Have Section Not Apply.--This section
shall not apply to any sale or exchange with respect to which
the taxpayer elects not to have this section apply.
``(g) Residences Acquired in Rollovers Under Section
1034.--For purposes of this section, in the case of property
the acquisition of which by the taxpayer resulted under section
1034 (as in effect on the day before the date of the enactment
of this section) in the nonrecognition of any part of the gain
realized on the sale or exchange of another residence, in
determining the period for which the taxpayer has owned and
used such property as the taxpayer's principal residence, there
shall be included the aggregate periods for which such other
residence (and each prior residence taken into account under
section 1223(7) in determining the holding period of such
property) had been so owned and used.''.
(b) Repeal of Nonrecognition of Gain on Rollover of
Principal Residence.--Section 1034 (relating to rollover of
gain on sale of principal residence) is hereby repealed.
(c) Exception From Reporting.--Subsection (e) of section
6045 (relating to return required in the caseof real estate
transactions) is amended by adding at the end the following new
paragraph:
``(5) Exception for sales or exchanges of certain
principal residences.--
``(A) In general.--Paragraph (1) shall not
apply to any sale or exchange of a residence
for $250,000 or less if the person referred to
in paragraph (2) receives written assurance in
a form acceptable to the Secretary from the
seller that--
``(i) such residence is the
principal residence (within the meaning
of section 121) of the seller,
``(ii) if the Secretary requires
the inclusion on the return under
subsection (a) of information as to
whether there is federally subsidized
mortgage financing assistance with
respect to the mortgage on residences,
that there is no such assistance with
respect to the mortgage on such
residence, and
``(iii) the full amount of the gain
on such sale or exchange is excludable
from gross income under section 121.
If such assurance includes an assurance that
the seller is married, the preceding sentence
shall be applied by substituting `$500,000' for
`$250,000'.
The Secretary may by regulation increase the dollar
amounts under this subparagraph if the Secretary
determines that such an increase will not materially
reduce revenues to the Treasury.
``(B) Seller.--For purposes of this
paragraph, the term `seller' includes the
person relinquishing the residence in an
exchange.''.
(d) Conforming Amendments.--
(1) The following provisions of the Internal
Revenue Code of 1986 are each amended by striking
``section 1034'' and inserting ``section 121'':
sections 25(e)(7), 56(e)(1)(A), 56(e)(3)(B)(i),
143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I), 280A(d)(4)(A),
464(f)(3)(B)(i), 1033(h)(4), 1274(c)(3)(B),
6334(a)(13), and 7872(f)(11)(A).
(2) Paragraph (4) of section 32(c) is amended by
striking ``(as defined in section 1034(h)(3))'' and by
adding at the end the following new sentence: ``For
purposes of the preceding sentence, the term `extended
active duty' means any period of active duty pursuant
to a call or order to such duty for a period in excess
of 90 days or for an indefinite period.''.
(3) Subparagraph (A) of 143(m)(6) is amended by
inserting ``(as in effect on the day before the date of
the enactment of the Taxpayer Relief Act of 1997)''
after ``1034(e)''.
(4) Subsection (e) of section 216 is amended by
striking ``such exchange qualifies for nonrecognition
of gain under section 1034(f)'' and inserting ``such
dwelling unit is used as his principal residence
(within the meaning of section 121)''.
(5) Section 512(a)(3)(D) is amended by inserting
``(as in effect on the day before the date of the
enactment of the Taxpayer Relief Act of 1997)'' after
``1034''.
(6) Paragraph (7) of section 1016(a) is amended by
inserting ``(as in effect on the day before the date of
the enactment of the Taxpayer Relief Act of 1997)''
after ``1034'' and by inserting ``(as so in effect)''
after ``1034(e)''.
(7) Paragraph (3) of section 1033(k) is amended to
read as follows:
``(3) For exclusion from gross income of gain from
involuntary conversion of principal residence, see
section 121.''.
(8) Subsection (e) of section 1038 is amended to
read as follows:
``(e) Principal Residences.--If--
``(1) subsection (a) applies to a reacquisition of
real property with respect to the sale of which gain
was not recognized under section 121 (relating to gain
on sale of principal residence); and
``(2) within 1 year after the date of the
reacquisition of such property by the seller, such
property is resold by him,
then, under regulations prescribed by the Secretary,
subsections (b), (c), and (d) of this section shall not apply
to the reacquisition of such property and, for purposes of
applying section 121, the resale of such property shall be
treated as a part of the transaction constituting the original
sale of such property.''.
(9) Paragraph (7) of section 1223 is amended by
inserting ``(as in effect on the day before the date of
the enactment of the Taxpayer Relief Act of 1997)''
after ``1034''.
(10)(A) Subsection (d) of section 1250 is amended
by striking paragraph (7) and by redesignating
paragraphs (9) and (10) as paragraphs (7) and (8),
respectively.
(B) Subsection (e) of section 1250 is amended by
striking paragraph (3).
(11) Subsection (c) of section 6012 is amended by
striking ``(relating to one-time exclusion of gain from
sale of principal residence by individual who has
attained age 55)'' and inserting ``(relating to gain
from sale of principal residence)''.
(12) Paragraph (2) of section 6212(c) is amended by
striking subparagraph (C) and by redesignating the
succeeding subparagraphs accordingly.
(13) Section 6504 is amended by striking paragraph
(4) and by redesignating the succeeding paragraphs
accordingly.
(14) The item relating to section 121 in the table
of sections for part III of subchapter B of chapter 1
is amended to read as follows:
``Sec. 121. Exclusion of gain from sale of principal
residence.''.
(15) The table of sections for part III of
subchapter O of chapter 1 is amended by striking the
item relating to section 1034.
(d) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to sales and exchanges after May 6,
1997.
(2) Sales before date of enactment.--At the
election of the taxpayer, the amendments made by this
section shall not apply to any sale or exchange before
the date of the enactment of this Act.
(3) Certain sales within 2 years after date of
enactment.--Section 121 of the Internal Revenue Code of
1986 (as amended by this section) shall be applied
without regard to subsection (c)(2)(B) thereof in the
case of any sale or exchange of property during the 2-
year period beginning on the date of the enactment of
this Act if the taxpayer held such property on the date
of the enactment of this Act and fails to meet the
ownership and use requirements of subsection (a)
thereof with respect to such property.
(4) Binding contracts.--At the election of the
taxpayer, the amendments made by this section shall not
apply to a sale or exchange after the date of the
enactment of this Act, if--
(A) such sale or exchange is pursuant to a
contract which was binding on such date, or
(B) without regard to such amendments, gain
would not be recognized under section 1034 of
the Internal Revenue Code of 1986 (as in effect
on the day before the date of the enactmentof
this Act) on such sale or exchange by reason of a new residence
acquired on or before such date or with respect to the acquisition of
which by the taxpayer a binding contract was in effect on such date.
This paragraph shall not apply to any sale or exchange
by an individual if the treatment provided by section
877(a)(1) of the Internal Revenue Code of 1986 applies
to such individual.
SEC. 313. ROLLOVER OF GAIN FROM SALE OF QUALIFIED STOCK.
(a) In General.--Part III of subchapter O of chapter 1 is
amended by adding at the end the following new section:
``SEC. 1045. ROLLOVER OF GAIN FROM QUALIFIED SMALL BUSINESS STOCK TO
ANOTHER QUALIFIED SMALL BUSINESS STOCK.
``(a) Nonrecognition of Gain.--In the case of any sale of
qualified small business stock held by an individual for more
than 6 months and with respect to which such individual elects
the application of this section, gain from such sale shall be
recognized only to the extent that the amount realized on such
sale exceeds--
``(1) the cost of any qualified small business
stock purchased by the taxpayer during the 60-day
period beginning on the date of such sale, reduced by
``(2) any portion of such cost previously taken
into account under this section.
This section shall not apply to any gain which is treated as
ordinary income for purposes of this title.
``(b) Definitions and Special Rules.--For purposes of this
section--
``(1) Qualified small business stock.--The term
`qualified small business stock' has the meaning given
such term by section 1202(c).
``(2) Purchase.--A taxpayer shall be treated as
having purchased any property if, but for paragraph
(3), the unadjusted basis of such property in the hands
of the taxpayer would be its cost (within the meaning
of section 1012).
``(3) Basis adjustments.--If gain from any sale is
not recognized by reason of subsection (a), such gain
shall be applied to reduce (in the order acquired) the
basis for determining gain or loss of any qualified
small business stock which is purchased by the taxpayer
during the 60-day period described in subsection (a).
``(4) Holding period.--For purposes of determining
whether the nonrecognition of gain under subsection (a)
applies to stock which is sold--
``(A) the taxpayer's holding period for
such stock and the stock referred to in
subsection (a)(1) shall be determined without
regard to section 1223, and
``(B) only the first 6 months of the
taxpayer's holding period for the stock
referred to in subsection (a)(1) shall be taken
into account for purposes of applying section
1202(c)(2).''.
(b) Conforming Amendments.--
(1) Section 1016(a)(23) is amended--
(A) by striking ``or 1044'' and inserting
``, 1044, or 1045'', and
(B) by striking ``or 1044(d)'' and
inserting ``, 1044(d), or 1045(b)(4)''.
(2) Section 1223 is amended by redesignating
paragraph (15) as paragraph (16) and by inserting after
paragraph (14) the following new paragraph:
``(15) In determining the period for which the
taxpayer has held property the acquisition of which
resulted under section 1045 in the nonrecognition of
any part of the gain realized on the sale of other
property, there shall be included the period for which
such other property has been held as of the date of
such sale.''.
(3) The table of sections for part III of
subchapter O of chapter 1 is amended by adding at the
end the following new item:
``Sec. 1045. Rollover of gain from qualified small business
stock to another qualified small business stock.''.
(c) Effective Date.--The amendments made by this section
shall apply to sales after the date of enactment of this Act.
SEC. 314. AMOUNT OF NET CAPITAL GAIN TAKEN INTO ACCOUNT IN COMPUTING
ALTERNATIVE TAX ON CAPITAL GAINS FOR CORPORATIONS
NOT TO EXCEED TAXABLE INCOME OF THE CORPORATION.
(a) In General.--Paragraph (2) of section 1201(a) is
amended by inserting before the period ``(or, if less, taxable
income)''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years ending after December 31, 1997.
TITLE IV--ALTERNATIVE MINIMUM TAX REFORM
SEC. 401. EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR SMALL
CORPORATIONS.
(a) In General.--Section 55 (relating to alternative
minimum tax imposed) is amended by adding at the end the
following new subsection:
``(e) Exemption for Small Corporations.--
``(1) In general.--The tentative minimum tax of a
corporation shall be zero for any taxable year if--
``(A) such corporation met the $5,000,000
gross receipts test of section 448(c) for its
first taxable year beginning after December 31,
1996, and
``(B) such corporation would meet such test
for the taxable year and all prior taxable
years beginning after such first taxable year
if such test were applied by substituting
`$7,500,000' for `$5,000,000'.
``(2) Prospective application of minimum tax if
small corporation ceases to be small.--In the case of a
corporation whose tentative minimum tax is zero for any
prior taxable year by reason of paragraph (1), the
application of this part for taxable years beginning
with the first taxable year such corporation ceases to
be described in paragraph (1) shall be determined with
the following modifications:
``(A) Section 56(a)(1) (relating to
depreciation) and section 56(a)(5) (relating to
pollution control facilities) shall apply only
to property placed in service on or after the
change date.
``(B) Section 56(a)(2) (relating to mining
exploration and development costs) shall apply
only to costs paid or incurred on or after the
change date.
``(C) Section 56(a)(3) (relating to
treatment of long-term contracts) shall apply
only to contracts entered into on or after the
change date.
``(D) Section 56(a)(4) (relating to
alternative net operating loss deduction) shall
apply in the same manner as if, in section
56(d)(2), the change date were substituted for
`January 1, 1987' and the day before the change
date were substituted for `December 31, 1986'
each place it appears.
``(E) Section 56(g)(2)(B) (relating to
limitation on allowance of negative adjustments
based on adjusted current earnings) shall apply
only to prior taxable years beginning on or
after the change date.
``(F) Section 56(g)(4)(A) (relating to
adjustment for depreciation to adjusted current
earnings) shall not apply.
``(G) Subparagraphs (D) and (F) of section
56(g)(4) (relating to other earnings and
profits adjustments and depletion) shall apply
in the same manner as if the day before the
change date were substituted for `December 31,
1989' each place it appears therein.
``(3) Exception.--The modifications in paragraph
(2) shall not apply to--
``(A) any item acquired by the corporation
in a transaction to which section 381 applies,
and
``(B) any property the basis of which in
the hands of the corporation is determined by
reference to the basis of the property in the
hands of the transferor,
if such item or property was subject to any provision
referred to in paragraph (2) while held by the
transferor.
``(4) Change date.--For purposes of paragraph (2),
the change date is the first day of the first taxable
year for which the taxpayer ceases to be described in
paragraph (1).
``(5) Limitation on use of credit for prior year
minimum tax liability.--In the case of a taxpayer whose
tentative minimum tax for any taxable year is zero by
reason of paragraph (1), section 53(c) shall be applied
for such year by reducing the amount otherwise taken
into account under section 53(c)(1) by 25 percent of so
much of such amount as exceeds $25,000. Rules similar
to the rules of section 38(c)(3)(B) shall apply for
purposes of the preceding sentence.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 402. REPEAL OF SEPARATE DEPRECIATION LIVES FOR MINIMUM TAX
PURPOSES.
(a) In General.--Clause (i) of section 56(a)(1)(A) is
amended by adding at the end the following new sentence: ``In
the case of property placed in service after December 31, 1998,
the preceding sentence shall not apply but clause (ii) shall
continue to apply.''
(b) Pollution Control Facilities.--Paragraph (5) of section
56(a) is amended by adding at the end the following new
sentence: ``In the case of such a facility placed in service
after December 31, 1998, such deduction shall be determined
under section 168 using the straight line method.''.
SEC. 403. MINIMUM TAX NOT TO APPLY TO FARMERS' INSTALLMENT SALES.
(a) In General.--Subsection (a) of section 56 is amended by
striking paragraph (6) (relating to treatment of installment
sales) and by redesignating paragraphs (7) and (8) as
paragraphs (6) and (7), respectively.
(b) Effective Dates.--
(1) In general.--The amendment made by this section
shall apply to dispositions in taxable years beginning
after December 31, 1987.
(2) Special rule for 1987.--In the case of taxable
years beginning in 1987, the last sentence of section
56(a)(6) of the Internal Revenue Code of 1986 (as in
effect for such taxable years) shall be applied by
inserting ``or in the case of a taxpayer using the cash
receipts and disbursements method of accounting, any
disposition described in section 453C(e)(1)(B)(ii)''
after ``section 453C(e)(4)''.
TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS
Subtitle A--Estate and Gift Tax Provisions
SEC. 501. COST-OF-LIVING ADJUSTMENTS RELATING TO ESTATE AND GIFT TAX
PROVISIONS.
(a) Increase in Unified Estate and Gift Tax Credit.--
(1) Estate tax credit.--
(A) In general.--Subsection (a) of section
2010 (relating to unified credit against estate
tax) is amended by striking ``$192,800'' and
inserting ``the applicable credit amount''.
(B) Applicable credit amount.--Section 2010
is amended by redesignating subsection (c) as
subsection (d) and by inserting after
subsection (b) the following new subsection:
``(c) Applicable Credit Amount.--For purposes of this
section, the applicable credit amount is the amount of the
tentative tax which would be determined under the rate schedule
set forth in section 2001(c) if the amount with respect to
which such tentative tax is to be computed were the applicable
exclusion amount determined in accordance with the following
table:
``In the case of estates
of decedents dying, The applicable
and gifts made, exclusion
during: amount is:
1998.......................................... $ 625,000
1999.......................................... $ 650,000
2000 and 2001................................. $ 675,000
2002 and 2003................................. $ 700,000
2004.......................................... $ 850,000
2005.......................................... $ 950,000
2006 or thereafter............................ $1,000,000.''
(C) Estate tax returns.--Paragraph (1) of
section 6018(a) is amended by striking
``$600,000'' and inserting ``the applicable
exclusion amount in effect under section
2010(c) for the calendar year which includes
the date of death''.
(D) Phaseout of graduated rates and unified
credit.--Paragraph (2) of section 2001(c) is
amended by striking ``$21,040,000'' and
inserting ``the amount at which the average tax
rate under this section is 55 percent''.
(E) Estates of nonresidents not citizens.--
Subparagraph (A) of section 2102(c)(3) is
amended by striking ``$192,800'' and inserting
``the applicable credit amount in effect under
section 2010(c) for the calendar year which
includes the date of death''.
(2) Unified gift tax credit.--Paragraph (1) of
section 2505(a) is amended by striking ``$192,800'' and
inserting ``the applicable credit amount in effect
under section 2010(c) for such calendar year''.
(b) Alternate Valuation of Certain Farm, Etc., Real
Property.--Subsection (a) of section 2032A is amended by adding
at the end the following new paragraph:
``(3) Inflation adjustment.--In the case of estates
of decedents dying in a calendar year after 1998, the
$750,000 amount contained in paragraph (2) shall be
increased by an amount equal to--
``(A) $750,000, multiplied by
``(B) the cost-of-living adjustment
determined under section 1(f)(3) for such
calendar year by substituting `calendar year
1997' for `calendar year 1992' in subparagraph
(B) thereof.
If any amount as adjusted under the preceding sentence
is not a multiple of $10,000, such amount shall be
rounded to the next lowest multiple of $10,000.''.
(c) Annual Gift Tax Exclusion.--Subsection (b) of section
2503 is amended--
(1) by striking the subsection heading and
inserting the following:
``(b) Exclusions From Gifts.--
``(1) In general.--'',
(2) by moving the text 2 ems to the right, and
(3) by adding at the end the following new
paragraph:
``(2) Inflation adjustment.--In the case of gifts
made in a calendar year after 1998, the $10,000 amount
contained in paragraph (1) shall be increased by an
amount equal to--
``(A) $10,000, multiplied by
``(B) the cost-of-living adjustment
determined under section 1(f)(3) for such
calendar year by substituting `calendar year
1997' for `calendar year 1992' in subparagraph
(B) thereof.
If any amount as adjusted under the preceding sentence
is not a multiple of $1,000, such amount shall be
rounded to the next lowest multiple of $1,000.''.
(d) Exemption From Generation-Skipping Tax.--Section 2631
(relating to GST exemption) is amended by adding at the end the
following new subsection:
``(c) Inflation Adjustment.--In the case of an individual
who dies in any calendar year after 1998, the $1,000,000 amount
contained in subsection (a) shall be increased by an amount
equal to--
``(1) $1,000,000, multiplied by
``(2) the cost-of-living adjustment determined
under section 1(f)(3) for such calendar year by
substituting `calendar year 1997' for `calendar year
1992' in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $10,000, such amount shall be rounded to the next
lowest multiple of $10,000.''.
(e) Amount Subject to Reduced Rate Where Extension of Time
for Payment of Estate Tax on Closely Held Business.--Subsection
(j) of section 6601 is amended by redesignating paragraph (3)
as paragraph (4) and by inserting after paragraph (2) the
following new paragraph:
``(3) Inflation adjustment.--In the case of estates
of decedents dying in a calendar year after 1998, the
$1,000,000 amount contained in paragraph (2)(A) shall
be increased by an amount equal to--
``(A) $1,000,000, multiplied by
``(B) the cost-of-living adjustment
determined under section 1(f)(3) for such
calendar year by substituting `calendar year
1997' for `calendar year 1992' in subparagraph
(B) thereof.
If any amount as adjusted under the preceding sentence
is not a multiple of $10,000, such amount shall be
rounded to the next lowest multiple of $10,000.''.
(f) Effective date.--The amendments made by this section
shall apply to the estates of decedents dying, and gifts made,
after December 31, 1997.
SEC. 502. FAMILY-OWNED BUSINESS EXCLUSION.
(a) In General.--Part III of subchapter A of chapter 11
(relating to gross estate) is amended by inserting after
section 2033 the following new section:
``SEC. 2033A. FAMILY-OWNED BUSINESS EXCLUSION.
``(a) In General.--In the case of an estate of a decedent
to which this section applies, the value of the gross estate
shall not include the lesser of--
``(1) the adjusted value of the qualified family-
owned business interests of the decedent otherwise
includible in the estate, or
``(2) the excess of $1,300,000 over the applicable
exclusion amount under section 2010(c) with respect to
such estate.
``(b) Estates to Which Section Applies.--
``(1) In general.--This section shall apply to an
estate if--
``(A) the decedent was (at the date of the
decedent's death) a citizen or resident of the
United States,
``(B) the executor elects the application
of this section and files the agreement
referred to in subsection (h),
``(C) the sum of--
``(i) the adjusted value of the
qualified family-owned business
interests described in paragraph (2),
plus
``(ii) the amount of the gifts of
such interests determined under
paragraph (3),
exceeds 50 percent of the adjusted gross
estate, and
``(D) during the 8-year period ending on
the date of the decedent's death there have
been periods aggregating 5 years or more during
which--
``(i) such interests were owned by
the decedent or a member of the
decedent's family, and
``(ii) there was material
participation (within the meaning of
section 2032A(e)(6)) by the decedent or
a member of the decedent's family in
the operation of the business to which
such interests relate.
``(2) Includible qualified family-owned business
interests.--The qualified family-owned business
interests described in this paragraph are the interests
which--
``(A) are included in determining the value
of the gross estate (without regard to this
section), and
``(B) are acquired by any qualified heir
from, or passed to any qualified heir from, the
decedent (within the meaning of section
2032A(e)(9)).
``(3) Includible gifts of interests.--The amount of
the gifts of qualified family-owned business interests
determined under this paragraph is the excess of--
``(A) the sum of--
``(i) the amount of such gifts from
the decedent to members of the
decedent's family taken into account
under subsection 2001(b)(1)(B), plus
``(ii) the amount of such gifts
otherwise excluded under section
2503(b),
to the extent such interests are continuously
held by members of such family (other than the
decedent's spouse) between the date of the gift
and the date of the decedent's death, over
``(B) the amount of such gifts from the
decedent to members of the decedent's family
otherwise included in the gross estate.
``(c) Adjusted Gross Estate.--For purposes of this section,
the term `adjusted gross estate' means the value of the gross
estate (determined without regard to this section)--
``(1) reduced by any amount deductible under
paragraph (3) or (4) of section 2053(a), and
``(2) increased by the excess of--
``(A) the sum of--
``(i) the amount of gifts
determined under subsection (b)(3),
plus
``(ii) the amount (if more than de
minimis) of other transfers from the
decedent to the decedent's spouse (at
the time of the transfer) within 10
years of the date of the decedent's
death, plus
``(iii) the amount of other gifts
(not included under clause (i) or (ii))
from the decedent within 3 years of
such date, other than gifts to members
of the decedent's family otherwise
excluded under section 2503(b), over
``(B) the sum of the amounts described in
clauses (i), (ii), and (iii) of subparagraph
(A) which are otherwise includible in the gross
estate.
For purposes of the preceding sentence, the Secretary may
provide that de minimis gifts to persons other than members of
the decedent's family shall not be taken into account.
``(d) Adjusted Value of the Qualified Family-Owned Business
Interests.--For purposes of this section, the adjusted value of
any qualified family-owned business interest is the value of
such interest for purposes of this chapter (determined without
regard to this section), reduced by the excess of--
``(1) any amount deductible under paragraph (3) or
(4) of section 2053(a), over
``(2) the sum of--
``(A) any indebtedness on any qualified
residence of the decedent the interest on which
is deductible under section 163(h)(3), plus
``(B) any indebtedness to the extent the
taxpayer establishes that the proceeds of such
indebtedness were used for the payment of
educational and medical expenses of the
decedent, the decedent's spouse, or the
decedent's dependents (within the meaning of
section 152), plus
``(C) any indebtedness not described in
subparagraph (A) or (B), to the extent such
indebtedness does not exceed $10,000.
``(e) Qualified Family-Owned Business Interest.--
``(1) In general.--For purposes of this section,
the term `qualified family-owned business interest'
means--
``(A) an interest as a proprietor in a
trade or business carried on as a
proprietorship, or
``(B) an interest in an entity carrying on
a trade or business, if--
``(i) at least--
``(I) 50 percent of such
entity is owned (directly or
indirectly) by the decedent and
members of the decedent's
family,
``(II) 70 percent of such
entity is so owned by members
of 2 families, or
``(III) 90 percent of such
entity is so owned by members
of 3 families, and
``(ii) for purposes of subclause
(II) or (III) of clause (i), at least
30 percent of such entity is so owned
by the decedent and members of the
decedent's family.
``(2) Limitation.--Such term shall not include--
``(A) any interest in a trade or business
the principal place of business of which is not
located in the United States,
``(B) any interest in an entity, if the
stock or debt of such entity or a controlled
group (as defined in section 267(f)(1)) of
which such entity was a member was readily
tradable on an established securities market or
secondary market (as defined by the Secretary)
at any time within 3 years of the date of the
decedent's death,
``(C) any interest in a trade or business
not described in section 542(c)(2), if more
than 35 percent of the adjusted ordinary gross
income of such trade or business for the
taxable year which includes the date of the
decedent's death would qualify as personal
holding company income (as defined in section
543(a)),
``(D) that portion of an interest in a
trade or business that is attributable to--
``(i) cash or marketable
securities, or both, in excess of the
reasonably expected day-to-day working
capital needs of such trade or
business, and
``(ii) any other assets of the
trade or business (other than assets
used in the active conduct of a trade
or business described in section
542(c)(2)), which produce, or are held
for the production of, income of which
is described in section 543(a) or in
section 954(c)(1) (determined without
regard to subparagraph (A) thereof and
by substituting `trade or business' for
`controlled foreign corporation').
``(3) Rules regarding ownership.--
``(A) Ownership of entities.--For purposes
of paragraph (1)(B)--
``(i) Corporations.--Ownership of a
corporation shall be determined by the
holding of stock possessing the
appropriate percentage of the total
combined voting power of all classes of
stock entitled to vote and the
appropriate percentage of the total
value of shares of all classes of
stock.
``(ii) Partnerships.--Ownership of
a partnership shall be determined by
the owning of the appropriate
percentage of the capital interest in
such partnership.
``(B) Ownership of tiered entities.--For
purposes of this section, if by reason of
holding an interest in a trade or business, a
decedent, any member of the decedent's family,
any qualified heir, or any member of any
qualified heir's family is treated as holding
an interest in any other trade or business--
``(i) such ownership interest in
the other trade or business shall be
disregarded in determining if the
ownership interest in the first trade
or business is aqualified family-owned
business interest, and
``(ii) this section shall be
applied separately in determining if
such interest in any other trade or
business is a qualified family-owned
business interest.
``(C) Individual ownership rules.--For
purposes of this section, an interest owned,
directly or indirectly, by or for an entity
described in paragraph (1)(B) shall be
considered as being owned proportionately by or
for the entity's shareholders, partners, or
beneficiaries. A person shall be treated as a
beneficiary of any trust only if such person
has a present interest in such trust.
``(f) Tax Treatment of Failure To Materially Participate in
Business or Dispositions of Interests.--
``(1) In general.--There is imposed an additional
estate tax if, within 10 years after the date of the
decedent's death and before the date of the qualified
heir's death--
``(A) the material participation
requirements described in section
2032A(c)(6)(B) are not met with respect to the
qualified family-owned business interest which
was acquired (or passed) from the decedent,
``(B) the qualified heir disposes of any
portion of a qualified family-owned business
interest (other than by a disposition to a
member of the qualified heir's family or
through a qualified conservation contribution
under section 170(h)),
``(C) the qualified heir loses United
States citizenship (within the meaning of
section 877) or with respect to whom an event
described in subparagraph (A) or (B) of section
877(e)(1) occurs, and such heir does not comply
with the requirements of subsection (g), or
``(D) the principal place of business of a
trade or business of the qualified family-owned
business interest ceases to be located in the
United States.
``(2) Additional estate tax.--
``(A) In general.--The amount of the
additional estate tax imposed by paragraph (1)
shall be equal to--
``(i) the applicable percentage of
the adjusted tax difference
attributable to the qualified family-
owned business interest(as determined
under rules similar to the rules of section 2032A(c)(2)(B)), plus
``(ii) interest on the amount
determined under clause (i) at the
underpayment rate established under
section 6621 for the period beginning
on the date the estate tax liability
was due under this chapter and ending
on the date such additional estate tax
is due.
``(B) Applicable percentage.--For purposes
of this paragraph, the applicable percentage
shall be determined under the following table:
``If the event described in
paragraph (1) occurs in
the following year of The applicable
material participation: percentage is:
1 through 6............................................... 100
7......................................................... 80
8......................................................... 60
9......................................................... 40
10........................................................ 20.
``(g) Security Requirements for Noncitizen Qualified
Heirs.--
``(1) In general.--Except upon the application of
subparagraph (F) or (M) of subsection (i)(3), if a
qualified heir is not a citizen of the United States,
any interest under this section passing to or acquired
by such heir (including any interest held by such heir
at a time described in subsection (f)(1)(C)) shall be
treated as a qualified family-owned business interest
only if the interest passes or is acquired (or is held)
in a qualified trust.
``(2) Qualified trust.--The term `qualified trust'
means a trust--
``(A) which is organized under, and
governed by, the laws of the United States or a
State, and
``(B) except as otherwise provided in
regulations, with respect to which the trust
instrument requires that at least 1 trustee of
the trust be an individual citizen of the
United States or a domestic corporation.
``(h) Agreement.--The agreement referred to in this
subsection is a written agreement signed by each person in
being who has an interest (whether or not in possession) in any
property designated in such agreement consenting to the
application of subsection (f) with respect to such property.
``(i) Other Definitions and Applicable Rules.--For purposes
of this section--
``(1) Qualified heir.--The term `qualified heir'--
``(A) has the meaning given to such term by
section 2032A(e)(1), and
``(B) includes any active employee of the
trade or business to which the qualified
family-owned business interest relates if such
employee has been employed by such trade or
business for a period of at least 10 years
before the date of the decedent's death.
``(2) Member of the family.--The term `member of
the family' has the meaning given to such term by
section 2032A(e)(2).
``(3) Applicable rules.--Rules similar to the
following rules shall apply:
``(A) Section 2032A(b)(4) (relating to
decedents who are retired or disabled).
``(B) Section 2032A(b)(5) (relating to
special rules for surviving spouses).
``(C) Section 2032A(c)(2)(D) (relating to
partial dispositions).
``(D) Section 2032A(c)(3) (relating to only
1 additional tax imposed with respect to any 1
portion).
``(E) Section 2032A(c)(4) (relating to due
date).
``(F) Section 2032A(c)(5) (relating to
liability for tax; furnishing of bond).
``(G) Section 2032A(c)(7) (relating to no
tax if use begins within 2 years; active
management by eligible qualified heir treated
as material participation).
``(H) Paragraphs (1) and (3) of section
2032A(d) (relating to election; agreement).
``(I) Section 2032A(e)(10) (relating to
community property).
``(J) Section 2032A(e)(14) (relating to
treatment of replacement property acquired in
section 1031 or 1033 transactions).
``(K) Section 2032A(f) (relating to statute
of limitations).
``(L) Section 6166(b)(3) (relating to
farmhouses and certain other structures taken
into account).
``(M) Subparagraphs (B), (C), and (D) of
section 6166(g)(1) (relating to acceleration of
payment).
``(N) Section 6324B (relating to special
lien for additional estate tax).''.
(b) Clerical Amendment.--The table of sections for part III
of subchapter A of chapter 11 is amended by inserting after the
item relating to section 2033 the following new item:
``Sec. 2033A. Family-owned business exclusion.''.
(c) Effective Date.--The amendments made by this section
shall apply to estates of decedents dying after December 31,
1997.
SEC. 503. MODIFICATIONS TO RATE OF INTEREST ON PORTION OF ESTATE TAX
EXTENDED UNDER SECTION 6166.
(a) In General.--Paragraphs (1) and (2) of section 6601(j)
(relating to 4-percent rate on certain portion of estate tax
extended under section 6166) are amended to read as follows:
``(1) In general.--If the time for payment of an
amount of tax imposed by chapter 11 is extended as
provided in section 6166, then in lieu of the annual
rate provided by subsection (a)--
``(A) interest on the 2-percent portion of
such amount shall be paid at the rate of 2
percent, and
``(B) interest on so much of such amount as
exceeds the 2-percent portion shall be paid at
a rate equal to 45 percent of the annual rate
provided by subsection (a).
For purposes of this subsection, the amount of any
deficiency which is prorated to installments payable
under section 6166 shall be treated as an amount of tax
payable in installments under such section.
``(2) 2-percent portion.--For purposes of this
subsection, the term `2-percent portion' means the
lesser of--
``(A)(i) the amount of the tentative tax
which would be determined under the rate
schedule set forth in section 2001(c) if the
amount with respect to which such tentative tax
is to be computed were the sum of $1,000,000
and the applicable exclusion amount in effect
under section 2010(c), reduced by
``(ii) the applicable credit amount in
effect under section 2010(c), or
``(B) the amount of the tax imposed by
chapter 11 which is extended as provided in
section 6166.''.
(b) Disallowance of Interest Deduction.--
(1) Estate tax.--Paragraph (1) of section 2053(c)
is amended by adding at the end the following new
subparagraph:
``(D) Section 6166 interest.--No deduction
shall be allowed under this section for any
interest payable under section 6601 on any
unpaid portion of the tax imposed by section
2001 for the period during which an extension
of time for payment of such tax is in effect
under section 6166.''.
(2) Income tax.--
(A) Section 163 is amended by redesignating
subsection (k) as subsection (l) and by
inserting after subsection (j) the following
new subsection:
``(k) Section 6166 Interest.--No deduction shall be allowed
under this section for any interest payable under section 6601
on any unpaid portion of the tax imposed by section 2001 for
the period during which an extension of time for payment of
such tax is in effect under section 6166.''.
(B) Subparagraph (E) of section 163(h)(2)
is amended by striking ``or 6166'' and all that
follows and inserting a period.
(c) Conforming Amendments.--
(1) Paragraphs (7)(A)(iii) and (8)(A)(iii) of
section 6166(b) are amended by striking ``4-percent''
each place it appears (including the heading) and
inserting ``2-percent''.
(2) Paragraph (4) of section 6601(j), as
redesignated by section 501(e), is amended by striking
``4-percent'' each place it appears and inserting ``2-
percent''.
(3) The subsection heading for section 6601(j) is
amended by striking ``4-Percent'' and inserting ``2-
Percent''.
(d) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to estates of decedents dying after
December 31, 1997.
(2) Election.--In the case of the estate of any
decedent dying before January 1, 1998, with respect to
which there is an election under section 6166 of the
Internal Revenue Code of 1986, the executor of the
estate may elect to have the amendments made by this
section apply with respect to installments due after
the effective date of the election; except that the 2-
percent portion of such installments shall be equal to
the amount which would be the 4-percent portion of such
installments without regard to such election. Such an
election shall be made before January 1, 1999 in the
manner prescribed by the Secretary of the Treasury and,
once made, is irrevocable.
SEC. 504. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER SECTION 2032A
TO LINEAL DESCENDANTS.
(a) General Rule.--Paragraph (7) of section 2032A(c)
(relating to special rules for tax treatment of dispositions
and failures to use for qualified use) is amended by adding at
the end the following new subparagraph:
``(E) Certain rents treated as qualified
use.--For purposes of this subsection, a
surviving spouse or lineal descendant of the
decedent shall not be treated as failing to use
qualified real property in a qualified use
solely because such spouse or descendant rents
such property to a member of the family of such
spouse or descendant on a net cash basis. For
purposes of the preceding sentence, a legally
adopted child of an individual shall be treated
as the child of such individual by blood.''.
(b) Conforming Amendment.--Section 2032A(b)(5)(A) is
amended by striking the last sentence.
(c) Effective Date.--The amendments made by this section
shall apply with respect to leases entered into after December
31, 1976.
SEC. 505. CLARIFICATION OF JUDICIAL REVIEW OF ELIGIBILITY FOR EXTENSION
OF TIME FOR PAYMENT OF ESTATE TAX.
(a) In General.--Part IV of subchapter C of chapter 76 of
the Internal Revenue Code of 1986 (relating to declaratory
judgments) is amended by adding at the end the following new
section:
``SEC. 7479. DECLARATORY JUDGMENTS RELATING TO ELIGIBILITY OF ESTATE
WITH RESPECT TO INSTALLMENT PAYMENTS UNDER SECTION
6166.
``(a) Creation of Remedy.--In a case of actual controversy
involving a determination by the Secretary of (or a failure by
the Secretary to make a determination with respect to)--
``(1) whether an election may be made under section
6166 (relating to extension of time for payment of
estate tax where estate consists largely of interest in
closely held business) with respect to an estate, or
``(2) whether the extension of time for payment of
tax provided in section 6166(a) has ceased to apply
with respect to an estate,
upon the filing of an appropriate pleading, the Tax Court may
make a declaration with respect to whether such election may be
made or whether such extension has ceased to apply. Any such
declaration shall have the force and effect of a decision of
the Tax Court and shall be reviewable as such.
``(b) Limitations.--
``(1) Petitioner.--A pleading may be filed under
this section, with respect to any estate, only--
``(A) by the executor of such estate, or
``(B) by any person who has assumed an
obligation to make payments under section 6166
with respect to such estate (but only if each
other such person is joined as a party).
``(2) Exhaustion of administrative remedies.--The
court shall not issue a declaratory judgment or decree
under this section in any proceeding unless it
determines that the petitioner has exhausted all
available administrative remedies within the Internal
Revenue Service. A petitioner shall be deemed to have
exhausted its administrative remedies with respect to a
failure of the Secretary to make a determination at the
expiration of 180 days after the date on which the
request for such determination was made if the
petitioner has taken, in a timely manner, all
reasonable steps to secure such determination.
``(3) Time for bringing action.--If the Secretary
sends by certified or registered mail notice of his
determination as described in subsection (a) to the
petitioner, no proceeding may be initiated under this
section unless the pleading is filed before the 91st
day after the date of such mailing.''.
(b) Clerical Amendment.--The table of sections for part IV
of subchapter C of chapter 76 of such Code is amended by adding
at the end the following new item:
``Sec. 7479. Declaratory judgments relating to eligibility of
estate with respect to installment payments under
section 6166.''.
1 (c) Effective Date.--The amendments made by this section
shall apply to the estates of decedents dying after the date of
the enactment of this Act.
SEC. 506. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES AFTER
EXPIRATION OF STATUTE OF LIMITATIONS.
(a) In General.--Section 2001 (relating to imposition and
rate of estate tax) is amended by adding at the end the
following new subsection:
``(f) Valuation of Gifts.--If--
``(1) the time has expired within which a tax may
be assessed under chapter 12 (or under corresponding
provisions of prior laws) on the transfer of property
by gift made during a preceding calendar period (as
defined in section 2502(b)), and
``(2) the value of such gift is shown on the return
for such preceding calendar period or is disclosed in
such return, or in a statement attached to the return,
in a manner adequate to apprise the Secretary of the
nature of such gift,
the value of such gift shall, for purposes of computing the tax
under this chapter, be the value of such gift as finally
determined for purposes of chapter 12.''.
(b) Modification of Application of Statute of
Limitations.--Paragraph (9) of section 6501(c) is amended to
read as follows:
``(9) Gift tax on certain gifts not shown on
return.--If any gift of property the value of which (or
any increase in taxable gifts required under section
2701(d) which) is required to be shown on a return of
tax imposed by chapter 12 (without regard to section
2503(b)), and is not shown on such return, any tax
imposed by chapter 12 on such gift may be assessed, or
a proceeding in court for the collection of such tax
may be begun without assessment, at any time. The
preceding sentence shall not apply to any item which is
disclosed in such return, or in a statement attached to
the return, in a manner adequate to apprise the
Secretary of the nature of such item. The value of any
item which is so disclosed may not be redetermined by
the Secretary after the expiration of the period under
subsection (a).''.
(c) Declaratory Judgment Procedure for Determining Value of
Gift.--
(1) In general.--Part IV of subchapter C of chapter
76 is amended by inserting after section 7476 the
following new section:
``SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF CERTAIN GIFTS.
``(a) Creation of Remedy.--In a case of an actual
controversy involving a determination by the Secretary of the
value of any gift shown on the return of tax imposed by chapter
12 or disclosed on such return or in any statement attached to
such return, upon the filing of an appropriate pleading, the
Tax Court may make a declaration of the value of such gift. Any
such declaration shall have the force and effect of a decision
of the Tax Court and shall be reviewable as such.
``(b) Limitations.--
``(1) Petitioner.--A pleading may be filed under
this section only by the donor.
``(2) Exhaustion of administrative remedies.--The
court shall not issue a declaratory judgment or decree
under this section in any proceedingunless it
determines that the petitioner has exhausted all available
administrative remedies within the Internal Revenue Service.
``(3) Time for bringing action.--If the Secretary
sends by certified or registered mail notice of his
determination as described in subsection (a) to the
petitioner, no proceeding may be initiated under this
section unless the pleading is filed before the 91st
day after the date of such mailing.''.
(2) Clerical amendment.--The table of sections for
such part IV is amended by inserting after the item
relating to section 7476 the following new item:
``Sec. 7477. Declaratory judgments relating to value of certain
gifts.''.
(d) Conforming Amendment.--Subsection (c) of section 2504
is amended by striking ``, and if a tax under this chapter or
under corresponding provisions of prior laws has been assessed
or paid for such preceding calendar period''.
(e) Effective Dates.--
(1) In general.--The amendments made by subsections
(a) and (c) shall apply to gifts made after the date of
the enactment of this Act.
(2) Subsection (b)--The amendment made by
subsection (b) shall apply to gifts made in calendar
years ending after the date of the enactment of this
Act.
SEC. 507. REPEAL OF THROWBACK RULES APPLICABLE TO CERTAIN DOMESTIC
TRUSTS.
(a) Accumulation Distributions.--
(1) In general.--Section 665 is amended by
inserting after subsection (b) the following new
subsection:
``(c) Exception for Accumulation Distributions From Certain
Domestic Trusts.--For purposes of this subpart--
``(1) In general.--In the case of a qualified
trust, any distribution in any taxable year beginning
after the date of the enactment of this subsection
shall be computed without regard to any undistributed
net income.
``(2) Qualified trust.--For purposes of this
subsection, the term `qualified trust' means any trust
other than--
``(A) a foreign trust (or, except as
provided in regulations, a domestic trust which
at any time was a foreign trust), or
``(B) a trust created before March 1, 1984,
unless it is established that the trust would
not be aggregated with other trusts under
section 643(f) if such section applied to such
trust.''.
(2) Conforming amendments.--Subsection (b) of
section 665 is amended by inserting ``except as
provided in subsection (c),'' after ``subpart,''.
(b) Repeal of Tax on Transfers to Trusts at Less Than Fair
Market Value.--
(1) Subpart A of part I of subchapter J of chapter
1 is amended by striking section 644 and by
redesignating section 645 as section 644.
(2) Paragraph (5) of section 706(b) is amended by
striking ``section 645'' and inserting ``section 644''.
(3) The table of sections for such subpart is
amended by striking the last 2 items and inserting the
following new item:
``Sec. 644. Taxable year of trusts.''
(c) Effective Dates.--
(1) Accumulation distributions.--The amendments
made by subsection (a) shall apply to distributions in
taxable years beginning after the date of the enactment
of this Act.
(2) Transferred property.--The amendments made by
subsection (b) shall apply to sales or exchanges after
the date of the enactment of this Act.
SEC. 508. TREATMENT OF LAND SUBJECT TO A QUALIFIED CONSERVATION
EASEMENT.
(a) Estate Tax With Respect to Land Subject to a Qualified
Conservation Easement.--Section 2031 (relating to the
definition of gross estate) is amended by redesignating
subsection (c) as subsection (d) and by inserting after
subsection (b) the following new subsection:
``(c) Estate Tax With Respect to Land Subject to a
Qualified Conservation Easement.--
``(1) In general.--If the executor makes the
election described in paragraph (6), then, except as
otherwise provided in this subsection, there shall be
excluded from the gross estate the lesser of--
``(A) the applicable percentage of the
value of land subject to a qualified
conservation easement, reduced by the amount of
any deduction under section 2055(f) with
respect to such land, or
``(B) the exclusion limitation.
``(2) Applicable percentage.--For purposes of
paragraph (1), the term `applicable percentage' means
40 percent reduced (but not below zero) by 2 percentage
points for each percentage point (or fraction thereof)
by which the value of the qualified conservation
easement is less than 30 percent of the value of the
land (determined without regard to the value of such
easement and reduced by the value of any retained
development right (as defined in paragraph (5)).
``(3) Exclusion limitation.--For purposes of
paragraph (1), the exclusion limitation is the
limitation determined in accordance with the following
table:
``In the case of estates of The exclusion
decedents dying during: limitation is:
1998.......................................... $100,000
1999.......................................... $200,000
2000.......................................... $300,000
2001.......................................... $400,000
2002 or thereafter............................ $500,000.
``(4) Treatment of certain indebtedness.--
``(A) In general.--The exclusion provided
in paragraph (1) shall not apply to the extent
that the land is debt-financed property.
``(B) Definitions.--For purposes of this
paragraph--
``(i) Debt-financed property.--The
term `debt-financed property' means any
property with respect to which there is
an acquisition indebtedness (as defined
in clause (ii)) on the date of the
decedent's death.
``(ii) Acquisition indebtedness.--
The term `acquisition indebtedness'
means, with respect to debt-financed
property, the unpaid amount of--
``(I) the indebtedness
incurred by the donor in
acquiring such property,
``(II) the indebtedness
incurred before the acquisition
of such property if such
indebtedness would not have
been incurred but for such
acquisition,
``(III) the indebtedness
incurred after the acquisition
of such property if such
indebtedness would not have
been incurred but for such
acquisition and the incurrence
of such indebtedness was
reasonably foreseeable at the
time of such acquisition, and
``(IV) the extension,
renewal, or refinancing of an
acquisition indebtedness.
``(5) Treatment of retained development right.--
``(A) In general.--Paragraph (1) shall not
apply to the value of any development right
retained by the donor in the conveyance of a
qualified conservation easement.
``(B) Termination of retained development
right.--If every person in being who has an
interest (whether or not in possession) in the
land executes an agreement to extinguish
permanently some or all of any development
rights (as defined in subparagraph (D))
retained by the donor on or before the date for
filing the return of the tax imposed by section
2001, then any tax imposed by section 2001
shall be reduced accordingly. Such agreement
shall be filed with the return of the tax
imposed by section 2001. The agreement shall be
in such form as the Secretary shall prescribe.
``(C) Additional tax.--Any failure to
implement the agreement described in
subparagraph (B) not later than the earlier
of--
``(i) the date which is 2 years
after the date of the decedent's death,
or
``(ii) the date of the sale of such
land subject to the qualified
conservation easement,
shall result in the imposition of an additional
tax in the amount of the tax which would
havebeen due on the retained development rights subject to such
agreement. Such additional tax shall be due and payable on the last day
of the 6th month following such date.
``(D) Development right defined.--For
purposes of this paragraph, the term
`development right' means any right to use the
land subject to the qualified conservation
easement in which such right is retained for
any commercial purpose which is not subordinate
to and directly supportive of the use of such
land as a farm for farming purposes (within the
meaning of section 2032A(e)(5)).
``(6) Election.--The election under this subsection
shall be made on the return of the tax imposed by
section 2001. Such an election, once made, shall be
irrevocable.
``(7) Calculation of estate tax due.--An executor
making the election described in paragraph (6) shall,
for purposes of calculating the amount of tax imposed
by section 2001, include the value of any development
right (as defined in paragraph (5)) retained by the
donor in the conveyance of such qualified conservation
easement. The computation of tax on any retained
development right prescribed in this paragraph shall be
done in such manner and on such forms as the Secretary
shall prescribe.
``(8) Definitions.--For purposes of this
subsection--
``(A) Land subject to a qualified
conservation easement.--The term `land subject
to a qualified conservation easement' means
land--
``(i) which is located--
``(I) in or within 25 miles
of an area which, on the date
of the decedent's death, is a
metropolitan area (as defined
by the Office of Management and
Budget),
``(II) in or within 25
miles of an area which, on the
date of the decedent's death,
is a national park or
wilderness area designated as
part of the National Wilderness
Preservation System (unless it
is determined by the Secretary
that land in or within 25 miles
of such a park or wilderness
area is not under significant
development pressure), or
``(III) in or within 10
miles of an area which, on the
date of the decedent's death,
is an Urban National Forest (as
designated by the Forest
Service),
``(ii) which was owned by the
decedent or a member of the decedent's
family at all times during the 3-year
period ending on the date of the
decedent's death, and
``(iii) with respect to which a
qualified conservation easement has
been made by an individual described in
subparagraph (C), as of the date of the
election described in paragraph (6).
``(B) Qualified conservation easement.--The
term `qualified conservation easement' means a
qualified conservation contribution (as defined
in section 170(h)(1)) of a qualified real
property interest (as defined in section
170(h)(2)(C)), except that clause (iv) of
section 170(h)(4)(A) shall not apply, and the
restriction on the use of such interest
described in section 170(h)(2)(C) shall include
a prohibition on more than a de minimis use for
a commercial recreational activity.
``(C) Individual described.--An individual
is described in this subparagraph if such
individual is--
``(i) the decedent,
``(ii) a member of the decedent's
family,
``(iii) the executor of the
decedent's estate, or
``(iv) the trustee of a trust the
corpus of which includes the land to be
subject to the qualified conservation
easement.
``(D) Member of family.--The term `member
of the decedent's family' means any member of
the family (as defined in section 2032A(e)(2))
of the decedent.
``(9) Application of this section to interests in
partnerships, corporations, and trusts.--This section
shall apply to an interest in a partnership,
corporation, or trust if at least 30 percent of the
entity is owned (directly or indirectly) by the
decedent, as determined under the rules described in
section 2033A(e)(3).''.
(b) Carryover Basis.--Section 1014(a) (relating to basis of
property acquired from a decedent) is amended by striking
``or'' at the end of paragraphs (1) and (2), by striking the
period at the end of paragraph (3) and inserting ``, or'' and
by adding at the end the following new paragraph:
``(4) to the extent of the applicability of the
exclusion described in section 2031(c), the basis in
the hands of the decedent.''.
(c) Qualified Conservation Contribution Is Not a
Disposition.--Subsection (c) of section 2032A (relating to
alternative valuation method) is amended by adding at the end
the following new paragraph:
``(8) Qualified conservation contribution is not a
disposition.--A qualified conservation contribution (as
defined in section 170(h)) by gift or otherwise shall
not be deemed a disposition under subsection
(c)(1)(A).''.
(d) Qualified Conservation Contribution Where Surface and
Mineral Rights are Separated.--Section 170(h)(5)(B)(ii)
(relating to special rule) is amended to read as follows:
``(ii) Special rule.--With respect to any
contribution of property in which the ownership of the
surface estate and mineral interests has been and
remains separated, subparagraph (A) shall be treated as
met if the probability of surface mining occurring on
such property is so remote as to be negligible.''.
(e) Effective Dates.--
(1) Enclusion.--The amendments made by subsections
(a) and (b) shall apply to estates of decedents dying
after December 31, 1997.
(2) Easements.--The amendments made by subsections
(c) and (d) shall apply to easements granted after
December 31, 1997.
Subtitle B--Generation-Skipping Tax Provision
SEC. 511. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING TRANSFER TAX
FOR TRANSFERS TO INDIVIDUALS WITH DECEASED PARENTS.
(a) In General.--Section 2651 (relating to generation
assignment) is amended by redesignating subsection (e) as
subsection (f) and by inserting after subsection (d) the
following new subsection:
``(e) Special Rule for Persons With a Deceased Parent.--
``(1) In general.--For purposes of determining
whether any transfer is a generation-skipping transfer,
if--
``(A) an individual is a descendant of a
parent of the transferor (or the transferor's
spouse or former spouse), and
``(B) such individual's parent who is a
lineal descendant of the parent of the
transferor (or the transferor's spouse or
former spouse) is dead at the time the transfer
(from which an interest of such individual is
established or derived) is subject to a tax
imposed by chapter 11 or 12 upon the transferor
(and if there shall be more than 1 such time,
then at the earliest such time),
such individual shall be treated as if such individual
were a member of the generation which is 1 generation
below the lower of the transferor's generation or the
generation assignment of the youngest living ancestor
of such individual who is also a descendant of the
parent of the transferor (or the transferor's spouse or
former spouse), and the generation assignment of any
descendant of such individual shall be adjusted
accordingly.
``(2) Limited application of subsection to
collateral heirs.--This subsection shall not apply with
respect to a transfer to any individual who is not a
lineal descendant of the transferor (or the
transferor's spouse or former spouse) if, at the time
of the transfer, such transferor has any living lineal
descendant.''.
(b) Conforming Amendments.--
(1) Section 2612(c) (defining direct skip) is
amended by striking paragraph (2) and by redesignating
paragraph (3) as paragraph (2).
(2) Section 2612(c)(2) (as so redesignated) is
amended by striking ``section 2651(e)(2)'' and
inserting ``section 2651(f)(2)''.
(c) Effective Date.--The amendments made by this section
shall apply to terminations, distributions, and transfers
occurring after December 31, 1997.
TITLE VI--EXTENSIONS
SEC. 601. RESEARCH TAX CREDIT.
(a) In General.--Paragraph (1) of section 41(h) (relating
to termination) is amended--
(1) by striking ``May 31, 1997'' and inserting
``June 30, 1998'', and
(2) by striking in the last sentence ``during the
first 11 months of such taxable year.'' and inserting
``during the 24-month period beginning with the first
month of such year. The 24 months referred to in the
preceding sentence shall be reduced by the number of
full months after June 1996 (and before the first month
of such first taxable year) during which the taxpayer
paid or incurred any amount which is taken into account
in determining the credit under this section.''.
(b) Technical Amendments.--
(1) Subparagraph (B) of section 41(c)(4) is amended
to read as follows:
``(B) Election.--An election under this
paragraph shall apply to the taxable year for
which made and all succeeding taxable years
unless revoked with the consent of the
Secretary.''.
(2) Paragraph (1) of section 45C(b) is amended by
striking ``May 31, 1997'' and inserting ``June 30,
1998''.
(c) Effective Date.--The amendments made by this section
shall apply to amounts paid or incurred after May 31, 1997.
SEC. 602. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.
(a) In General.--Clause (ii) of section 170(e)(5)(D)
(relating to termination) is amended by striking ``May 31,
1997'' and inserting ``June 30, 1998''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to contributions made after May 31, 1997.
SEC. 603. WORK OPPORTUNITY TAX CREDIT.
(a) Extension.--Subparagraph (B) of section 51(c)(4)
(relating to termination) is amended by striking ``September
30, 1997'' and inserting ``June 30, 1998''.
(b) Modification of Eligibility Requirement Based on Period
on Welfare.--
(1) In general.--Subparagraph (A) of section
51(d)(2) (defining qualified IV-A recipient) is amended
by striking all that follows ``a IV-A program'' and
inserting ``for any 9 months during the 18-month period
ending on the hiring date.''.
(2) Conforming amendment.--Subparagraph (A) of
section 51(d)(3) is amended to read as follows:
``(A) In general.--The term `qualified
veteran' means any veteran who is certified by
the designated local agency as being a member
of a family receiving assistance under a food
stamp program under the Food Stamp Act of 1977
for at least a 3-month period ending during the
12-month period ending on the hiring date.''.
(c) Qualified SSI Recipients Treated as Members of Targeted
Groups.--
(1) In general.--Section 51(d)(1) (relating to
members of targeted groups) is amended by striking
``or'' at the end of subparagraph (F), by striking the
period at the end of subparagraph (G) and inserting ``,
or'', and by adding at the end the following new
subparagraph:
``(H) a qualified SSI recipient.''.
(2) Qualified ssi recipients.--Section 51(d) is
amended by redesignating paragraphs (9), (10), and (11)
as paragraphs (10), (11), and (12), respectively, and
by inserting after paragraph (8) the following new
paragraph:
``(9) Qualified ssi recipient.--The term `qualified
SSI recipient' means any individual who is certified by
the designated local agency as receiving supplemental
security income benefits under title XVI of the Social
Security Act (including supplemental security income
benefits of the type described in section 1616 of such
Act or section 212 of Public Law 93-66) for any month
ending within the 60-day period ending on the hiring
date.''.
(d) Percentage of Wages Allowed as Credit.--
(1) In general.--Subsection (a) of section 51
(relating to determination of amount) is amended by
striking ``35 percent'' and inserting ``40 percent''.
(2) Application of credit for individuals
performing fewer than 400 hours of services.--Paragraph
(3) of section 51(i) is amended to read as follows:
``(3) Individuals not meeting minimum employment
periods.--
``(A) Reduction of credit for individuals
performing fewer than 400 hours of service.--In
the case of an individual who has performed at
least 120 hours, but less than 400 hours, of
service for the employer, subsection (a) shall
be applied by substituting `25 percent' for `40
percent'.
``(B) Denial of credit for individuals
performing fewer than 120 hours of service.--No
wages shall be taken into account under
subsection (a) with respect to any individual
unless such individual has performed at least
120 hours of service for the employer.''.
(e) Effective date.--The amendments made by this section
shall apply to individuals who begin work for the employer
after September 30, 1997.
SEC. 604. ORPHAN DRUG TAX CREDIT.
(a) In General.--Section 45C (relating to clinical testing
expenses for certain drugs for rare diseases or conditions) is
amended by striking subsection (e).
(b) Effective Date.--The amendment made by subsection (a)
shall apply to amounts paid or incurred after May 31, 1997.
TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA
SEC. 701. TAX INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF
COLUMBIA.
(a) In General.--Chapter 1 is amended by adding at the end
the following new subchapter:
``Subchapter W--District of Columbia Enterprise Zone
``Sec. 1400. Establishment of DC Zone.
``Sec. 1400A. Tax-exempt economic development bonds.
``Sec. 1400B. Zero percent capital gains rate.
``Sec. 1400C. First-time homebuyer credit for District of
Columbia.
``SEC. 1400. ESTABLISHMENT OF DC ZONE.
``(a) In General.--For purposes of this title--
``(1) the applicable DC area is hereby designated
as the District of Columbia Enterprise Zone, and
``(2) except as otherwise provided in this
subchapter, the District of Columbia Enterprise Zone
shall be treated as an empowerment zone designated
under subchapter U.
``(b) Applicable DC Area.--For purposes of subsection (a),
the term `applicable DC area' means the area consisting of--
``(1) the census tracts located in the District of
Columbia which are part of an enterprise community
designated under subchapter U before the date of the
enactment of this subchapter, and
``(2) all other census tracts--
``(A) which are located in the District of
Columbia, and
``(B) for which the poverty rate is not
less than than 20 percent.
``(c) District of Columbia Enterprise Zone.--For purposes
of this subchapter, the terms `District of Columbia Enterprise
Zone' and `DC Zone' mean the District of Columbia Enterprise
Zone designated by subsection (a).
``(d) Special Rules for Application of Employment Credit.--
``(1) Employees whose principal place of abode is
in district of columbia.--With respect to the DC Zone,
section 1396(d)(1)(B) (relating to empowerment zone
employment credit) shall be applied by substituting
`the District of Columbia' for `such empowerment zone'.
``(2) No decrease of percentage in 2002.--In the
case of the DC Zone, section 1396 (relating to
empowerment zone employment credit) shall be applied by
substituting ``20'' for ``15'' in the table contained
in section 1396(b). The preceding sentence shall apply
only with respect to qualified zone employees, as
defined in section 1396(d), determined by treating no
area other than the DC Zone as an empowerment zone or
enterprise community.
``(e) Special Rule for Application of Enterprise Zone
Business Definition.--For purposes of this subchapter and for
purposes of applying subchapter U with respect to the DC Zone,
section 1397B shall be applied without regard to subsections
(b)(6) and (c)(5) thereof.
``(f) Time For Which Designation Applicable.--
``(1) In general.--The designation made by
subsection (a) shall apply for the period beginning on
January 1, 1998, and ending on December 31, 2002.
``(2) Coordination with dc enterprise community
designated under subchapter u.--The designation under
subchapter U of the census tracts referred to in
subsection (b)(1) as an enterprise community shall
terminate on December 31, 2002.
``SEC. 1400A. TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.
``(a) In General.--In the case of the District of Columbia
Enterprise Zone, subparagraph (A) of section 1394(c)(1)
(relating to limitation on amount of bonds) shall be applied by
substituting `$15,000,000' for `$3,000,000'.
``(b) Period of Applicability.--This section shall apply to
bonds issued during the period beginning on January 1, 1998,
and ending on December 31, 2002.
``SEC. 1400B. ZERO PERCENT CAPITAL GAINS RATE.
``(a) Exclusion.--Gross income shall not include qualified
capital gain from the sale or exchange of any DC Zone asset
held for more than 5 years.
``(b) DC Zone Asset.--For purposes of this section--
``(1) In general.--The term `DC Zone asset' means--
``(A) any DC Zone business stock,
``(B) any DC Zone partnership interest, and
``(C) any DC Zone business property.
``(2) DC zone business stock.--
``(A) In general.--The term `DC Zone
business stock' means any stock in a domestic
corporation which is originally issued after
December 31, 1997, if--
``(i) such stock is acquired by the
taxpayer, before January 1, 2003, at
its original issue (directly or through
an underwriter) solely in exchange for
cash,
``(ii) as of the time such stock
was issued, such corporation was a DC
Zone business (or, in the case of a new
corporation, such corporation was being
organized for purposes of being a DC
Zone business), and
``(iii) during substantially all of
the taxpayer's holding period for such
stock, such corporation qualified as a
DC Zone business.
``(B) Redemptions.--A rule similar to the
rule of section 1202(c)(3) shall apply for
purposes of this paragraph.
``(3) DC zone partnership interest.--The term `DC
Zone partnership interest' means any capital or profits
interest in a domestic partnership which is originally
issued after December 31, 1997, if--
``(A) such interest is acquired by the
taxpayer, before January 1, 2003, from the
partnership solely in exchange for cash,
``(B) as of the time such interest was
acquired, such partnership was a DC Zone
business (or, in the case of a new partnership,
such partnership was being organized for
purposes of being a DC Zone business), and
``(C) during substantially all of the
taxpayer's holding period for such interest,
such partnership qualified as a DC Zone
business.
A rule similar to the rule of paragraph (2)(B) shall
apply for purposes of this paragraph.
``(4) DC zone business property.--
``(A) In general.--The term `DC Zone
business property' means tangible property if--
``(i) such property was acquired by
the taxpayer by purchase (as defined in
section 179(d)(2)) after December 31,
1997, and before January 1, 2003,
``(ii) the original use of such
property in the DC Zone commences with
the taxpayer, and
``(iii) during substantially all of
the taxpayer's holding period for such
property, substantially all of the use
of such property was in a DC Zone
business of the taxpayer.
``(B) Special rule for buildings which are
substantially improved.--
``(i) In general.--The requirements
of clauses (i) and (ii) of subparagraph
(A) shall be treated as met with
respect to--
``(I) property which is
substantially improved by the
taxpayer before January 1,
2003, and
``(II) any land on which
such property is located.
``(ii) Substantial improvement.--
For purposes of clause (i), property
shall be treated as substantially
improved by the taxpayer only if,
during any 24-month period beginning
after December 31, 1997, additions to
basis with respect to such property in
the hands of the taxpayer exceed the
greater of--
``(I) an amount equal to
the adjusted basis of such
property at the beginning of
such 24-month period in the
hands of the taxpayer, or
``(II) $5,000.
``(6) Treatment of subsequent purchasers, etc.--The
term `DC Zone asset' includes any property which would
be a DC Zone asset but for paragraph (2)(A)(i), (3)(A),
or (4)(A)(ii) in the hands of the taxpayer if such
property was a DC Zone asset in the hands of a prior
holder.
``(7) 5-year safe harbor.--If any property ceases
to be a DC Zone asset by reason of paragraph
(2)(A)(iii), (3)(C), or (4)(A)(iii) after the 5-year
period beginning on the date the taxpayer acquired such
property, such property shall continue to be treated as
meeting the requirements of such paragraph; except that
the amount of gain to which subsection (a) applies on
any sale or exchange of such property shall not exceed
the amount which would be qualified capital gain had
such property been sold on the date of such cessation.
``(c) DC Zone Business.--For purposes of this section, the
term `DC Zone business' means any entity which is an enterprise
zone business (as defined in section 1397B), determined--
``(1) after the application of section 1400(e),
``(2) by substituting ``80 percent'' for ``50
percent'' in subsections (b)(2) and (c)(1) of section
1397B, and
``(3) by treating no area other than the DC Zone as
an empowerment zone or enterprise community.
``(d) Treatment of Zone as Including Census Tracts With 10
Percent Poverty Rate.--For purposes of applying this section
(and for purposes of applying this subchapter and subchapter U
with respect to this section), the DC Zone shall be treated as
including all census tracts--
``(1) which are located in the District of
Columbia, and
``(2) for which the poverty rate is not less than
10 percent.
``(e) Other Definitions and Special Rules.--For purposes of
this section--
``(1) Qualified capital gain.--Except as otherwise
provided in this subsection, the term `qualified
capital gain' means any gain recognized on the sale or
exchange of--
``(A) a capital asset, or
``(B) property used in the trade or
business (as defined in section 1231(b)).
``(2) Gain before 1998 or after 2007 not
qualified.--The term `qualified capital gain' shall not
include any gain attributable to periods before January
1, 1998, or after December 31, 2007.
``(3) Certain gain not qualified.--The term
`qualified capital gain' shall not include any gain
which would be treated as ordinary income under section
1245 or under section 1250 if section 1250 applied to
all depreciation rather than the additional
depreciation.
``(4) Intangibles and land not integral part of dc
zone business.--The term `qualified capital gain' shall
not include any gain which is attributable to real
property, or an intangible asset, which is not an
integral part of a DC Zone business.
``(5) Related party transactions.--The term
`qualified capital gain' shall not include any gain
attributable, directly or indirectly, in whole or in
part, to a transaction with a related person. For
purposes of this paragraph, persons are related to each
other if such persons are described in section 267(b)
or 707(b)(1).
``(f) Certain Other Rules To Apply.--Rules similar to the
rules of subsections (g), (h), (i)(2), and (j) of section 1202
shall apply for purposes of this section.
``(g) Sales and Exchanges of Interests in Partnerships and
S Corporations Which Are DC Zone Businesses.--In the case of
the sale or exchange of an interest in a partnership, or of
stock in an S corporation, which was a DC Zone business during
substantially all of the period the taxpayer held such interest
or stock, the amount of qualified capital gain shall be
determined without regard to--
``(1) any gain which is attributable to real
property, or an intangible asset, which is not an
integral part of a DC Zone business, and
``(2) any gain attributable to periods before
January 1, 1998, or after December 31, 2007.
``SEC. 1400C. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.
``(a) Allowance of Credit.--In the case of an individual
who is a first-time homebuyer of a principal residence in the
District of Columbia during any taxable year, there shall be
allowed as a credit against the tax imposed by this chapter for
the taxable year an amount equal to so much of the purchase
price of the residence as does not exceed $5,000.
``(b) Limitation Based on Modified Adjusted Gross Income.--
``(1) In general.--The amount allowable as a credit
under subsection (a) (determined without regard to this
subsection) for the taxable year shall be reduced (but
not below zero) by the amount which bears the same
ratio to the credit so allowable as--
``(A) the excess (if any) of--
``(i) the taxpayer's modified
adjusted gross income for such taxable
year, over
``(ii) $70,000 ($110,000 in the
case of a joint return), bears to
``(B) $20,000.
``(2) Modified adjusted gross income.--For purposes
of paragraph (1), the term `modified adjusted gross
income' means the adjusted gross income of the taxpayer
for the taxable year increased by any amount excluded
from gross income under section 911, 931, or 933.
``(c) First-Time Homebuyer.--For purposes of this section--
``(1) In general.--The term `first-time homebuyer'
has the same meaning as when used in section
72(t)(8)(D)(i), except that `principal residence in the
District of Columbia during the 1-year period' shall be
substituted for `principal residence during the 2-year
period' in subclause (I) thereof.
``(2) One-time only.--If an individual is treated
as a first-time homebuyer with respect to any principal
residence, such individual may not be treated as a
first-time homebuyer with respect to any other
principal residence.
``(3) Principal residence.--The term `principal
residence' has the same meaning as when used in section
121.
``(d) Carryover of Credit.--If the credit allowable under
subsection (a) exceeds the limitation imposed by section 26(a)
for such taxable year reduced by the sum of the credits
allowable under subpart A of part IV of subchapter A (other
than this section), such excess shall be carried to the
succeeding taxable year and added to the credit allowable under
subsection (a) for such taxable year.
``(e) Special Rules.--For purposes of this section--
``(1) Allocation of dollar limitation.--
``(A) Married individuals filing
separately.--In the case of a married
individual filing a separate return, subsection
(a) shall be applied by substituting `$2,500'
for `$5,000'.
``(B) Other taxpayers.--If 2 or more
individuals who are not married purchase a
principal residence, the amount of the credit
allowed under subsection (a) shall be allocated
among such individuals in such manner as the
Secretary may prescribe, except that the total
amount of the credits allowed to all such
individuals shall not exceed $5,000.
``(2) Purchase.--
``(A) In general.--The term `purchase'
means any acquisition, but only if--
``(i) the property is not acquired
from a person whose relationship to the
person acquiring it would result in the
disallowance of losses under section
267 or 707(b) (but, in applying section
267 (b) and (c) for purposes of this
section, paragraph (4) of section
267(c) shall be treated as providing
that the family of an individual shall
include only his spouse, ancestors, and
lineal descendants), and
``(ii) the basis of the property in
the hands of the person acquiring it is
not determined--
``(I) in whole or in part
by reference to the adjusted
basis of such property in the
hands of the person from whom
acquired, or
``(II) under section
1014(a) (relating to property
acquired from a decedent).
``(B) Construction.--A residence which is
constructed by the taxpayer shall be treated as
purchased by the taxpayer.
``(3) Purchase price.--The term `purchase price'
means the adjusted basis of the principal residence on
the date of acquisition (within the meaning of section
72(t)(8)(D)(iii)).
``(f) Reporting.--If the Secretary requires information
reporting under section 6045 by a person described in
subsection (e)(2) thereof to verify the eligibility of
taxpayers for the credit allowable by this section, the
exception provided by section 6045(e)(5) shall not apply.
``(g) Credit Treated as Nonrefundable Personal Credit.--For
purposes of this title, the credit allowed by this section
shall be treated as a credit allowable under subpart A of part
IV of subchapter A of this chapter.
``(h) Basis Adjustment.--For purposes of this subtitle, if
a credit is allowed under this section with respect to the
purchase of any residence, the basis of such residence shall be
reduced by the amount of the credit so allowed.
``(i) Termination.--This section shall not apply to any
property purchased after December 31, 2000.''
(b) Conforming Amendments.--
(1) Subsection (d) of section 39 is amended by
adding at the end the following new paragraph:
``(8) No carryback of dc zone credits before
effective date.--No portion of the unused business
credit for any taxable year which is attributable to
the credits allowable under subchapter U by reason of
section 1400 may be carried back to a taxable year
ending before the date of the enactment of section
1400.''
(2) Subsection (a) of section 1016 is amended by
striking ``and'' at the end of paragraph (25), by
striking the period at the end of paragraph (26) and
inserting ``, and'', and by adding at the end thereof
the following new paragraph:
``(27) in the case of a residence with respect to
which a credit was allowed under section 1400C, to the
extent provided in section 1400C(h).''
(c) Clerical Amendment.--The table of subchapters for
chapter 1 is amended by adding at the end the following new
item:
``Subchapter W. District of Columbia Enterprise Zone.''.
(d) Effective Date.--Except as provided in subsection (c),
the amendments made by this section shall take effect on the
date of the enactment of this Act.
TITLE VIII--WELFARE-TO-WORK INCENTIVES
SEC. 801. INCENTIVES FOR EMPLOYING LONG-TERM FAMILY ASSISTANCE
RECIPIENTS.
(a) In General.--Subpart F of part IV of subchapter A of
chapter 1 is amended by inserting after section 51 the
following new section:
``SEC. 51A. TEMPORARY INCENTIVES FOR EMPLOYING LONG-TERM FAMILY
ASSISTANCE RECIPIENTS.
``(a) Determination of Amount.--For purposes of section 38,
the amount of the welfare-to-work credit determined under this
section for the taxable year shall be equal to--
``(1) 35 percent of the qualified first-year wages
for such year, and
``(2) 50 percent of the qualified second-year wages
for such year.
``(b) Qualified Wages Defined.--For purposes of this
section--
``(1) In general.--The term `qualified wages' means
the wages paid or incurred by the employer during the
taxable year to individuals who are long-term family
assistance recipients.
``(2) Qualified first-year wages.--The term
`qualified first-year wages' means, with respect to any
individual, qualified wages attributable to service
rendered during the 1-year period beginning with the
day the individual begins work for the employer.
``(3) Qualified second-year wages.--The term
`qualified second-year wages' means, with respect to
any individual, qualified wages attributable to service
rendered during the 1-year period beginning on the day
after the last day of the 1-year period with respect to
such individual determined under paragraph (2).
``(4) Only first $10,000 of wages per year taken
into account.--The amount of the qualified first-year
wages, and the amount of qualified second-year wages,
which may be taken into account with respect to any
individual shall not exceed $10,000 per year.
``(5) Wages.--
``(A) In general.--The term `wages' has the
meaning given such term by section 51(c),
without regard to paragraph (4) thereof.
``(B) Certain amounts treated as wages.--
The term `wages' includes amounts paid or
incurred by the employer which are excludable
from such recipient's gross income under--
``(i) section 105 (relating to
amounts received under accident and
health plans),
``(ii) section 106 (relating to
contributions by employer to accident
and health plans),
``(iii) section 127 (relating to
educational assistance programs) or
would be so excludable but for section
127(d), but only to the extent paid or
incurred to a person not related to the
employer, or
``(iv) section 129 (relating to
dependent care assistance programs).
The amount treated as wages by clause (i) or
(ii) for any period shall be based on the
reasonable cost of coverage for the period, but
shall not exceed the applicable premium for the
period under section 4980B(f)(4).
``(C) Special rules for agricultural and
railway labor.--If such recipient is an
employee to whom subparagraph (A) or (B) of
section 51(h)(1) applies, rules similar to
therules of such subparagraphs shall apply except that--
``(i) such subparagraph (A) shall
be applied by substituting `$10,000'
for `$6,000', and
``(ii) such subparagraph (B) shall
be applied by substituting `$833.33'
for `$500'.
``(c) Long-Term Family Assistance Recipients.--For purposes
of this section--
``(1) In general.--The term `long-term family
assistance recipient' means any individual who is
certified by the designated local agency (as defined in
section 51(d)(10))--
``(A) as being a member of a family
receiving assistance under a IV-A program (as
defined in section 51(d)(2)(B)) for at least
the 18-month period ending on the hiring date,
``(B)(i) as being a member of a family
receiving such assistance for 18 months
beginning after the date of the enactment of
this section, and
``(ii) as having a hiring date which is not
more than 2 years after the end of the earliest
such 18-month period, or
``(C)(i) as being a member of a family
which ceased to be eligible after the date of
the enactment of this section for such
assistance by reason of any limitation imposed
by Federal or State law on the maximum period
such assistance is payable to a family, and
``(ii) as having a hiring date which is not
more than 2 years after the date of such
cessation.
``(2) Hiring date.--The term `hiring date' has the
meaning given such term by section 51(d).
``(d) Certain Rules To Apply.--
``(1) In general.--Rules similar to the rules of
section 52, and subsections (d)(11), (f), (g), (i) (as
in effect on the day before the date of the enactment
of the Taxpayer Relief Act of 1997), (j), and (k) of
section 51, shall apply for purposes of this section.
``(2) Credit to be part of general business credit,
etc.--References to section 51 in section 38(b),
280C(a), and 1396(c)(3) shall be treated as including
references to this section.
``(e) Coordination With Work Opportunity Credit.--If a
credit is allowed under this section to an employer with
respect to an individual for any taxable year, then for
purposes of applying section 51 to such employer, such
individual shall not be treated as a member of a targeted group
for such taxable year.
``(f) Termination.--This section shall not apply to
individuals who begin work for the employer after April 30,
1999.''.
(b) Clerical Amendment.--The table of sections for subpart
F of part IV of subchapter A of chapter 1 is amended by
inserting after the item relating to section 51 the following
new item:
``Sec. 51A. Temporary incentives for employing long-term family
assistance recipients.''.
(c) Effective Date.--The amendments made by this section
shall apply to individuals who begin work for the employer
after December 31, 1997.
TITLE IX--MISCELLANEOUS PROVISIONS
Subtitle A--Provisions Relating to Excise Taxes
SEC. 901. GENERAL REVENUE PORTION OF HIGHWAY MOTOR FUELS TAXES
DEPOSITED INTO HIGHWAY TRUST FUND.
(a) In General.--Paragraph (4) of section 9503(b) (relating
to certain additional taxes not transferred to Highway Trust
Fund) is amended to read as follows:
``(4) Certain taxes not transferred to highway
trust fund.--For purposes of paragraphs (1) and (2),
there shall not be taken into account the taxes imposed
by--
``(A) section 4041(d),
``(B) section 4081 to the extent
attributable to the rate specified in section
4081(a)(2)(B),
``(C) section 4041 or 4081 to the extent
attributable to fuel used in a train,
``(D) in the case of fuels used as
described in paragraph (4)(D), (5)(B), or
(6)(D) of subsection (c), section 4041 or
4081--
``(i) with respect to so much of
the rate of tax on gasoline or special
motor fuels as exceeds 11.5 cents per
gallon, and
``(ii) with respect to so much of
the rate of tax on diesel fuel or
kerosene as exceeds 17.5 cents per
gallon,
``(E) in the case of fuels described in
section 4041(b)(2)(A), 4041(k), or 4081(c),
section 4041 or 4081 before October 1, 1999,
with respect to a rate equal to 2.5 cents per
gallon, or
``(F) in the case of fuels described in
section 4081(c)(2), such section before October
1, 1999, with respect to a rate equal to 2.8
cents per gallon.''.
(b) Mass Transit Portion.--Section 9503(e)(2) (relating to
transfers to Mass Transit Account) is amended by striking ``2
cents'' and inserting ``2.85 cents''.
(c) Limitation on Expenditures.--Subsection (c) of section
9503 is amended by adding at the end the following new
paragraph:
``(7) Limitation on expenditures.--Notwithstanding
any other provision of law, in calculating amounts
under section 157(a) of title 23, United States Code,
and sections 1013(c), 1015(a), and 1015(b) of the
Intermodal Surface Transportation Efficiency Act of
1991 (Public Law 102-240; 105 Stat. 1914), deposits in
the Highway Trust Fund resulting from the amendments
made by the Taxpayer Relief Act of 1997 shall not be
taken into account.''.
(d) Technical Amendments.--
(1) Section 9503 is amended by striking subsection
(f).
(2) The last sentence of subparagraph (A) of
section 9503(c)(2) is amended by striking ``by taking
into account only the Highway Trust Fund financing rate
applicable to any fuel'' and inserting ``by taking into
account only the portion of the taxes which are
deposited into the Highway Trust Fund''.
(3) Paragraphs (4)(D), (5)(B), and (6)(D) of
section 9503(c) are each amended by striking
``attributable to the Highway Trust Fund financing
rate'' and inserting ``deposited into the Highway Trust
Fund''.
(e) Delayed Deposits of Highway Motor Fuel Tax Revenues.--
Notwithstanding section 6302 of the Internal Revenue Code of
1986, in the case of deposits of taxes imposed by sections 4041
and 4081 (other than subsection (a)(2)(A)(ii)) of the Internal
Revenue Code of1986, the due date for any deposit which would
(but for this subsection) be required to be made after July 31, 1998,
and before October 1, 1998, shall be October 5, 1998.
(f) Effective Date.--The amendments made by this section
shall apply to taxes received in the Treasury after September
30, 1997.
SEC. 902. REPEAL OF TAX ON DIESEL FUEL USED IN RECREATIONAL BOATS.
(a) In General.--Subparagraph (B) of section 6421(e)(2)
(defining off-highway business use) is amended by striking
clauses (iii) and (iv).
(b) Conforming Amendments.--
(1) Subparagraph (A) of section 4041(a)(1) is
amended--
(A) by striking ``, a diesel-powered train,
or a diesel-powered boat'' each place it
appears and inserting ``or a diesel-powered
train'', and
(B) by striking ``vehicle, train, or boat''
and inserting ``vehicle or train''.
(2) Paragraph (1) of section 4041(a) is amended by
striking subparagraph (D).
(3) Paragraph (3) of section 4083(a) is amended by
striking ``, a diesel-powered train, or a diesel-
powered boat'' and inserting ``or a diesel-powered
train''.
(c) Effective Date.--The amendments made by this section
shall take effect on January 1, 1998.
SEC. 903. CONTINUED APPLICATION OF TAX ON IMPORTED RECYCLED HALON-1211.
(a) In General.--Paragraph (1) of section 4682(d) is
amended by striking ``recycled halon'' and inserting ``recycled
Halon-1301 or recycled Halon-2402''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on the date of the enactment of this Act.
SEC. 904. UNIFORM RATE OF TAX ON VACCINES.
(a) In General.--Subsection (b) of section 4131 is amended
to read as follows:
``(b) Amount of Tax.--
``(1) In general.--The amount of the tax imposed by
subsection (a) shall be 75 cents per dose of any
taxable vaccine.
``(2) Combinations of vaccines.--If any taxable
vaccine is described in more than 1 subparagraph of
section 4132(a)(1), the amount of the tax imposed by
subsection (a) on such vaccine shall be the sum of the
amounts for the vaccines which are so included.''.
(b) Taxable Vaccines.--Paragraph (1) of section 4132(a) is
amended to read as follows:
``(1) Taxable vaccine.--The term `taxable vaccine'
means any of the following vaccines which are
manufactured or produced in the United States or
entered into the United States for consumption, use, or
warehousing:
``(A) Any vaccine containing diphtheria
toxoid.
``(B) Any vaccine containing tetanus
toxoid.
``(C) Any vaccine containing pertussis
bacteria, extracted or partial cell bacteria,
or specific pertussis antigens.
``(D) Any vaccine against measles.
``(E) Any vaccine against mumps.
``(F) Any vaccine against rubella.
``(G) Any vaccine containing polio virus.
``(H) Any HIB vaccine.
``(I) Any vaccine against hepatitis B.
``(J) Any vaccine against chicken pox.''.
(c) Conforming Amendment.--Subsection (a) of section 4132
is amended by striking paragraphs (2), (3), (4), and (5) and by
redesignating paragraphs (6) through (8) as paragraphs (2)
through (4), respectively.
(d) Effective Date.--The amendments made by this section
shall take effect on the day after the date of the enactment of
this Act.
(e) Limitation on Certain Credits or Refunds.--For purposes
of applying section 4132(b) of the Internal Revenue Code of
1986 with respect to any claim for credit or refund filed
before January 1, 1999, the amount of tax taken into account
shall not exceed the tax computed under the rate in effect on
the day after the date of the enactment of this Act.
SEC. 905. OPERATORS OF MULTIPLE GASOLINE RETAIL OUTLETS TREATED AS
WHOLESALE DISTRIBUTOR FOR REFUND PURPOSES.
(a) In General.--Subparagraph (B) of section 6416(a)(4)
(defining wholesale distributor) is amended by adding at the
end the following new sentence: ``Such term includes any person
who makes retail sales of gasoline at 10 or more retail motor
fuel outlets.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to sales after the date of the enactment of this
Act.
SEC. 906. EXEMPTION OF ELECTRIC AND OTHER CLEAN-FUEL MOTOR VEHICLES
FROM LUXURY AUTOMOBILE CLASSIFICATION.
(a) In General.--Subsection (a) of section 4001 (relating
to imposition of tax) is amended to read as follows:
``(a) Imposition of Tax.--
``(1) In general.--There is hereby imposed on the
1st retail sale of any passenger vehicle a tax equal to
10 percent of the price for which so sold to the extent
such price exceeds the applicable amount.
``(2) Applicable amount.--
``(A) In general.--Except as provided in
subparagraphs (B) and (C), the applicable
amount is $30,000.
``(B) Qualified clean-fuel vehicle
property.--In the case of a passenger vehicle
which is propelled by a fuel which is not a
clean-burning fuel and to which is installed
qualified clean-fuel vehicle property (as
defined in section 179A(c)(1)(A)) for purposes
of permitting such vehicle to be propelled by a
clean-burning fuel, the applicable amount is
equal to the sum of--
``(i) the dollar amount in effect
under subparagraph (A), plus
``(ii) the increase in the price
for which the passenger vehicle was
sold (within the meaning of section
4002) due to the installation of such
property.
``(C) Purpose built passenger vehicle.--
``(i) In general.--In the case of a
purpose built passenger vehicle, the
applicable amount is equal to 150
percent of the dollar amount in effect
under subparagraph (A).
``(ii) Purpose built passenger
vehicle.--For purposes of clause (i),
the term `purpose built passenger
vehicle' means a passenger vehicle
produced by an original equipment
manufacturer and designed so that the
vehicle may be propelled primarily by
electricity.''.
(b) Conforming Amendments.--
(1) Subsection (e) of section 4001 (relating to
inflation adjustment) is amended by striking ``and
section 4003(a)''.
(2) Subsection (f) of section 4001 (relating to
phasedown) is amended by striking ``subsection (a)''
and inserting ``subsection (a)(1)''.
(3) Subparagraph (A) of section 4003(a)(1) is
amended by inserting ``(other than property described
in section 4001(a)(2)(B))'' after ``part or
accessory''.
(4) Subparagraph (B) of section 4003(a)(2) is
amended to read as follows:
``(B) the appropriate applicable amount as
determined under section 4001(a)(2).''.
(c) Effective Date.--The amendments made by this section
shall apply to sales and installations occurring after the date
of the enactment of this Act.
SEC. 907. RATE OF TAX ON CERTAIN SPECIAL FUELS DETERMINED ON BASIS OF
BTU EQUIVALENCY WITH GASOLINE.
(a) Special Motor Fuels.--
(1) In general.--Paragraph (2) of section 4041(a)
(relating to special motor fuels) is amended to read as
follows:
``(2) Special motor fuels.--
``(A) In general.--There is hereby imposed
a tax on any liquid (other than kerosene, gas
oil, fuel oil, or any product taxable under
section 4081)--
``(i) sold by any person to an
owner, lessee, or other operator of a
motor vehicle or motorboat for use as a
fuel in such motor vehicle or
motorboat, or
``(ii) used by any person as a fuel
in a motor vehicle or motorboat unless
there was a taxable sale of such liquid
under clause (i).
``(B) Rate of tax.--The rate of the tax
imposed by this paragraph shall be--
``(i) except as otherwise provided
in this subparagraph, the rate of tax
specified in section 4081(a)(2)(A)(i)
which is in effect at the time of such
sale or use,
``(ii) 13.6 cents per gallon in the
case of liquefied petroleum gas, and
``(iii) 11.9 cents per gallon in
the case of liquefied natural gas.
In the case of any sale or use after September
30, 1999, clause (ii) shall be applied by
substituting `3.2 cents' for `13.6 cents', and
clause (iii) shall be applied by substituting
`2.8 cents' for `11.9 cents'.''.
(2) Conforming amendment.--Paragraph (1) of section
4041(d) is amended by inserting ``and other than
liquefied natural gas'' after ``liquefied petroleum
gas''.
(b) Methanol Fuel Produced From Natural Gas.--Subparagraph
(A) of section 4041(m)(1) is amended to read as follows:
``(A) the rate of the tax imposed by
subsection (a)(2) shall be--
``(i) after September 30, 1997, and
before October 1, 1999--
``(I) in the case of fuel
none of the alcohol in which
consists of ethanol, 9.15 cents
per gallon, and
``(II) in any other case,
11.3 cents per gallon, and
``(ii) after September 30, 1999--
``(I) in the case of fuel
none of the alcohol in which
consists of ethanol, 2.15 cents
per gallon, and
``(II) in any other case,
4.3 cents per gallon, and''.
(c) Effective Date.--The amendments made by this section
shall take effect on October 1, 1997.
SEC. 908. MODIFICATION OF TAX TREATMENT OF HARD CIDER.
(a) Hard Cider Containing Less Than 7 Percent Alcohol Taxed
as Wine.--Subsection (b) of section 5041 (relating to
imposition and rate of tax) is amended by striking ``and'' at
the end of paragraph (4), by striking the period at the end of
paragraph (5) and inserting ``; and'', and by adding at the end
the following new paragraph:
``(6) On hard cider derived primarily from apples
or apple concentrate and water, containing no other
fruit product, and containing at least one-half of 1
percent and less than 7 percent alcohol by volume, 22.6
cents per wine gallon.''.
(b) Application of Small Producer Credit.--Paragraph (1) of
section 5041(c) (relating to credit for small domestic
producers) is amended by adding at the end the following new
sentence: ``In the case of wine described in subsection (b)(6),
the preceding sentence shall be applied by substituting `5.6
cents' for `90 cents'.''
(c) Effective Date.--The amendments made by this section
shall take effect on October 1, 1997.
SEC. 909. STUDY OF FEASIBILITY OF MOVING COLLECTION POINT FOR DISTILLED
SPIRITS EXCISE TAX.
(a) In General.--The Secretary of the Treasury or his
delegate shall conduct a study of options for changing the
event on which the tax imposed by section 5001 of the Internal
Revenue Code of 1986 is determined. One such option which shall
be studied is determining such tax on removal from registered
wholesale warehouses. In studying each such option, such
Secretary shall focus on administrative issues including--
(1) tax compliance,
(2) the number of taxpayers required to pay the
tax,
(3) the types of financial responsibility
requirements that might be required, and
(4) special requirements regarding segregation of
non-tax-paid distilled spirits from other products.
Such study shall review the effects of each such option on the
Department of the Treasury (including staffing and other
demands on budgetary resources) and the change in the period
between the time such tax is currently paid and the time such
tax would be paid under each such option.
(b) Report.--The report of such study shall be submitted to
the Committee on Finance of the Senate and the Committee on
Ways and Means of the House of Representatives not later than
March 31, 1998.
SEC. 910. CLARIFICATION OF AUTHORITY TO USE SEMI-GENERIC DESIGNATIONS
ON WINE LABELS.
(a) In General.--Section 5388 (relating to designation of
wines) is amended by adding at the end the following new
subsection:
``(c) Use of Semi-Generic Designations.--
``(1) In general.--Semi-generic designations may be
used to designate wines of an origin other than that
indicated by such name only if--
``(A) there appears in direct conjunction
therewith an appropriate appellation of origin
disclosing the true place of origin of the
wine, and
``(B) the wine so designated conforms to
the standard of identity, if any, for such wine
contained in the regulations under this section
or, if there is no such standard, to the trade
understanding of such class or type.
``(2) Determination of whether name is semi-
generic.--
``(A) In general.--Except as provided in
subparagraph (B), a name of geographic
significance, which is also the designation of
a class or type of wine, shall be deemed to
have become semi-generic only if so found by
the Secretary.
``(B) Certain names treated as semi-
generic.--The following names shall be treated
as semi-generic: Angelica, Burgundy, Claret,
Chablis, Champagne, Chianti, Malaga, Marsala,
Madeira, Moselle, Port, Rhine Wine or Hock,
Sauterne, Haut Sauterne, Sherry, Tokay.''.
(b) Effective Date.--The amendment made by this section
shall take effect on the date of the enactment of this Act.
Subtitle B--Revisions Relating to Disasters
SEC. 911. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES BY REASON
OF PRESIDENTIALLY DECLARED DISASTER.
(a) In General.--Chapter 77 is amended by inserting after
section 7508 the following new section:
``SEC. 7508A. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES BY
REASON OF PRESIDENTIALLY DECLARED DISASTER.
``(a) In General.--In the case of a taxpayer determined by
the Secretary to be affected by a Presidentially declared
disaster (as defined by section 1033(h)(3)), the Secretary may
prescribe regulations under which a period of up to 90 days may
be disregarded in determining, under the internal revenue laws,
in respect of any tax liability (including any penalty,
additional amount, or addition to the tax) of such taxpayer--
``(1) whether any of the acts described in
paragraph (1) of section 7508(a) were performed within
the time prescribed therefor, and
``(2) the amount of any credit or refund.
``(b) Interest on Overpayments and Underpayments.--
Subsection (a) shall not apply for the purpose of determining
interest on any overpayment or underpayment.''.
(b) Clerical Amendment.--The table of sections for chapter
77 is amended by inserting after the item relating to section
7508 the following new item:
``Sec. 7508A. Authority to postpone certain tax-related
deadlines by reason of presidentially declared
disaster.''.
(c) Effective Date.--The amendments made by this section
shall apply with respect to any period for performing an act
that has not expired before the date of the enactment of this
Act.
SEC. 912. USE OF CERTAIN APPRAISALS TO ESTABLISH AMOUNT OF DISASTER
LOSS.
(a) In General.--Subsection (i) of section 165 is amended
by adding at the end the following new paragraph:
``(4) Use of disaster loan appraisals to establish
amount of loss.--Nothing in this title shall be
construed to prohibit the Secretary from prescribing
regulations or other guidance under which an appraisal
for the purpose of obtaining a loan of Federal funds or
a loan guarantee from the Federal Government as a
result of a Presidentially declared disaster (as
defined by section 1033(h)(3)) may be used to establish
the amount of any loss described in paragraph (1) or
(2).''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on the date of the enactment of this Act.
SEC. 913. TREATMENT OF LIVESTOCK SOLD ON ACCOUNT OF WEATHER-RELATED
CONDITIONS.
(a) Deferral of Income Inclusion.--Subsection (e) of
section 451 (relating to special rules for proceeds from
livestock sold on account of drought) is amended--
(1) by striking ``drought conditions, and that
these drought conditions'' in paragraph (1) and
inserting ``drought, flood, or other weather-related
conditions, and that such conditions''; and
(2) by inserting ``, Flood, or Other Weather-
Related Conditions'' after ``Drought'' in the
subsection heading.
(b) Involuntary Conversions.--Subsection (e) of section
1033 (relating to livestock sold on account of drought) is
amended--
(1) by inserting ``, flood, or other weather-
related conditions'' before the period at the end
thereof; and
(2) by inserting ``, Flood, or Other Weather-
Related Conditions'' after ``Drought'' in the
subsection heading.
(c) Effective Date.--The amendments made by this section
shall apply to sales and exchanges after December 31, 1996.
SEC. 914. MORTGAGE FINANCING FOR RESIDENCES LOCATED IN DISASTER AREAS.
Subsection (k) of section 143 (relating to mortgage revenue
bonds; qualified mortgage bond and qualified veteran's mortgage
bond) is amended by adding at the end the following new
paragraph:
``(11) Special rules for residences located in
disaster areas.--In the case of a residence located in
an area determined by the President to warrant
assistance from the Federal Government under the Robert
T. Stafford Disaster Relief and Emergency Assistance
Act (as in effect on the date of the enactment of the
Taxpayer Relief Act of 1997), this section shall be
applied with the following modifications to financing
provided with respect to such residence within 2 years
after the date of the disaster declaration:
``(A) Subsection (d) (relating to 3-year
requirement) shall not apply.
``(B) Subsections (e) and (f) (relating to
purchase price requirement and income
requirement) shall be applied as if such
residence were a targeted area residence.
The preceding sentence shall apply only with respect to
bonds issued after December 31, 1996, and before
January 1, 1999.''.
SEC. 915. ABATEMENT OF INTEREST ON UNDERPAYMENTS BY TAXPAYERS IN
PRESIDENTIALLY DECLARED DISASTER AREAS.
(a) In General.--If the Secretary of the Treasury extends
for any period the time for filing income tax returns under
section 6081 of the Internal Revenue Code of 1986 and the time
for paying income tax with respect to such returns under
section 6161 of such Code (and waives any penalties relating to
the failure to so file or so pay) for any individual located in
a Presidentially declared disaster area, the Secretary shall,
notwithstanding section 7508A(b) of such Code, abate for such
period the assessment of any interest prescribed under section
6601 of such Code on such income tax.
(b) Presidentially Declared Disaster Area.--For purposes of
subsection (a), the term ``Presidentially declared disaster
area'' means, with respect to any individual, any area which
the President has determined during 1997 warrants assistance by
the Federal Government under the Robert T. Stafford Disaster
Relief and Emergency Assistance Act.
(c) Individual.--For purposes of this section, the term
``individual'' shall not include any estate or trust.
(d) Effective Date.--This section shall apply to disasters
declared after December 31, 1996.
Subtitle C--Provisions Relating to Employment Taxes
SEC. 921. CLARIFICATION OF STANDARD TO BE USED IN DETERMINING
EMPLOYMENT TAX STATUS OF SECURITIES BROKERS.
(a) In General.--In determining for purposes of the
Internal Revenue Code of 1986 whether a registered
representative of a securities broker-dealer is an employee (as
defined in section 3121(d) of the Internal Revenue Code of
1986), no weight shall be given to instructions from the
service recipient which are imposed only in compliance with
investor protection standards imposed by the Federal
Government, any State government, or a governing body pursuant
to a delegation by a Federal or State agency.
(b) Effective Date.--Subsection (a) shall apply to services
performed after December 31, 1997.
SEC. 922. CLARIFICATION OF EXEMPTION FROM SELF-EMPLOYMENT TAX FOR
CERTAIN TERMINATION PAYMENTS RECEIVED BY FORMER
INSURANCE SALESMEN.
(a) Internal Revenue Code.--Section 1402 (relating to
definitions) is amended by adding at the end the following new
subsection:
``(k) Codification of Treatment of Certain Termination
Payments Received by Former Insurance Salesmen.--Nothing in
subsection (a) shall be construed as including in the net
earnings from self-employment of an individual any amount
received during the taxable year from an insurance company on
account of services performed by such individual as an
insurance salesman for such company if--
``(1) such amount is received after termination of
such individual's agreement to perform such services
for such company,
``(2) such individual performs no services for such
company after such termination and before the close of
such taxable year,
``(3) such individual enters into a covenant not to
compete against such company which applies to at least
the 1-year period beginning on the date of such
termination, and
``(4) the amount of such payment--
``(A) depends primarily on policies sold by
or credited to the account of such individual
during the last year of such agreement or the
extent to which such policies remain in force
for some period after such termination, or
both, and
``(B) does not depend to any extent on
length of service or overall earnings from
services performed for such company (without
regard to whether eligibility for payment
depends on length of service).''.
(b) Social Security Act.--Section 211 of the Social
Security Act is amended by adding at the end the following new
subsection:
``Codification of Treatment of Certain Termination Payments Received by
Former Insurance Salesmen
``(j) Nothing in subsection (a) shall be construed as
including in the net earnings from self-employment of an
individual any amount received during the taxable year from an
insurance company on account of services performed by such
individual as an insurance salesman for such company if--
``(1) such amount is received after termination of
such individual's agreement to perform such services
for such company,
``(2) such individual performs no services for such
company after such termination and before the close of
such taxable year,
``(3) such individual enters into a covenant not to
compete against such company which applies to at least
the 1-year period beginning on the date of such
termination, and
``(4) the amount of such payment--
``(A) depends primarily on policies sold by
or credited to the account of such individual
during the last year of such agreement or the
extent to which such policies remain in force
for some period after such termination, or
both, and
``(B) does not depend to any extent on
length of service or overall earnings from
services performed for such company (without
regard to whether eligibility for payment
depends on length of service).''.
(c) Effective Date.--The amendments made by this section
shall apply to payments after December 31, 1997.
Subtitle D--Provisions Relating to Small Businesses
SEC. 931. WAIVER OF PENALTY THROUGH JUNE 30, 1998, ON SMALL BUSINESSES
FAILING TO MAKE ELECTRONIC FUND TRANSFERS OF TAXES.
No penalty shall be imposed under the Internal Revenue Code
of 1986 solely by reason of a failure by a person to use the
electronic fund transfer system established under section
6302(h) of such Code if--
(1) such person is a member of a class of taxpayers
first required to use such system on or after July 1,
1997, and
(2) such failure occurs before July 1, 1998.
SEC. 932. CLARIFICATION OF TREATMENT OF HOME OFFICE USE FOR
ADMINISTRATIVE AND MANAGEMENT ACTIVITIES.
(a) In General.--Paragraph (1) of section 280A(c) is
amended by adding at the end the following new sentence: ``For
purposes of subparagraph (A), the term `principal place of
business' includes a place of business which is used by the
taxpayer for the administrative or management activities of any
trade or business of the taxpayer if there is no other fixed
location of such trade or business where the taxpayer conducts
substantial administrative or management activities of such
trade or business.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1998.
SEC. 933. AVERAGING OF FARM INCOME OVER 3 YEARS.
(a) In General.--Subchapter Q of chapter 1 (relating to
readjustment of tax between years and special limitations) is
amended by adding the following new part:
``PART I--INCOME AVERAGING
``Sec. 1301. Averaging of farm income.
``SEC. 1301. AVERAGING OF FARM INCOME.
``(a) In General.--At the election of an individual engaged
in a farming business, the tax imposed by section 1 for such
taxable year shall be equal to the sum of--
``(1) a tax computed under such section on taxable
income reduced by elected farm income, plus
``(2) the increase in tax imposed by section 1
which would result if taxable income for each of the 3
prior taxable years were increased by an amount equal
to one-third of the elected farm income.
Any adjustment under this section for any taxable year shall be
taken into account in applying this section for any subsequent
taxable year.
``(b) Definitions.--In this section--
``(1) Elected farm income.--
``(A) In general.--The term `elected farm
income' means so much of the taxable income for
the taxable year--
``(i) which is attributable to any
farming business; and
``(ii) which is specified in the
election under subsection (a).
``(B) Treatment of gains.--For purposes of
subparagraph (A), gain from the sale or other
disposition of property (other than land)
regularly used by the taxpayer in such a
farming business for a substantial period shall
be treated as attributable to such a farming
business.
``(2) Individual.--The term `individual' shall not
include any estate or trust.
``(3) Farming business.--The term `farming
business' has the meaning given such term by section
263A(e)(4).
``(c) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes of
this section, including regulations regarding--
``(1) the order and manner in which items of
income, gain, deduction, or loss, or limitations on
tax, shall be taken into account in computing the tax
imposed by this chapter on the income of any taxpayer
to whom this section applies for any taxable year, and
``(2) the treatment of any short taxable year.''.
(b) Clerical Amendment.--The table of parts for such
subchapter Q is amended by inserting before the item relating
to part II the following new item:
``Part I. Income averaging.''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1997,
and before January 1, 2001.
SEC. 934. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
EMPLOYED INDIVIDUALS.
(a) In General.--The table contained in section
162(l)(1)(B) is amended to read as follows:
``For taxable years be- The applicable
ginning in calendar year-- percentage is--
1997...................................................... 40
1998 and 1999............................................. 45
2000 and 2001............................................. 50
2002...................................................... 60
2003 through 2005......................................... 80
2006...................................................... 90
2007 and thereafter....................................... 100.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 1996.
SEC. 935. MORATORIUM ON CERTAIN REGULATIONS.
No temporary or final regulation with respect to the
definition of a limited partner under section 1402(a)(13) of
the Internal Revenue Code of 1986 may be issued or made
effective before July 1, 1998.
Subtitle E--Brownfields
SEC. 941. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.
(a) In General.--Part VI of subchapter B of chapter 1 is
amended by adding at the end the following new section:
``SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.
``(a) In General.--A taxpayer may elect to treat any
qualified environmental remediation expenditure which is paid
or incurred by the taxpayer as an expense which is not
chargeable to capital account. Any expenditure which is so
treated shall be allowed as a deduction for the taxable year in
which it is paid or incurred.
``(b) Qualified Environmental Remediation Expenditure.--For
purposes of this section--
``(1) In general.--The term `qualified
environmental remediation expenditure' means any
expenditure--
``(A) which is otherwise chargeable to
capital account, and
``(B) which is paid or incurred in
connection with the abatement or control of
hazardous substances at a qualified
contaminated site.
``(2) Special rule for expenditures for depreciable
property.--Such term shall not include any expenditure
for the acquisition of property of a character subject
to the allowance for depreciation which is used in
connection with the abatement or control of hazardous
substances at a qualified contaminated site; except
that the portion of the allowance under section 167 for
such property which is otherwise allocated to such site
shall be treated as a qualified environmental
remediation expenditure.
``(c) Qualified Contaminated Site.--For purposes of this
section--
``(1) Qualified contaminated site.--
``(A) In general.--The term `qualified
contaminated site' means any area--
``(i) which is held by the taxpayer
for use in a trade or business or for
the production of income, or which is
property described in section 1221(1)
in the hands of the taxpayer,
``(ii) which is within a targeted
area, and
``(iii) at or on which there has
been a release (or threat of release)
or disposal of any hazardous substance.
``(B) Taxpayer must receive statement from
state environmental agency.--An area shall be
treated as a qualified contaminated site with
respect to expenditures paid or incurred during
any taxable year only if the taxpayer receives
a statement from the appropriate agency of the
State in which such area is located that such
area meets the requirements of clauses (ii) and
(iii) of subparagraph (A).
``(C) Appropriate state agency.--For
purposes of subparagraph (B), the chief
executive officer of each State may, in
consultation with the Administrator of the
Environmental Protection Agency, designate the
appropriate State environmental agency within
60 days of the date of the enactment of this
section. If the chief executive officer of a
State has not designated an appropriate State
environmental agency within such 60-day period,
the appropriate environmental agency for such
State shall be designated by the Administrator
of the Environmental Protection Agency.
``(2) Targeted area.--
``(A) In general.--The term `targeted area'
means--
``(i) any population census tract
with a poverty rate of not less than 20
percent,
``(ii) a population census tract
with a population of less than 2,000
if--
``(I) more than 75 percent
of such tract is zoned for
commercial or industrial use,
and
``(II) such tract is
contiguous to 1 or more other
population census tracts which
meet the requirement of clause
(i) without regard to this
clause,
``(iii) any empowerment zone or
enterprise community (and any
supplemental zone designated on
December 21, 1994), and
``(iv) any site announced before
February 1, 1997, as being included as
a brownfields pilot project of the
Environmental Protection Agency.
``(B) National priorities listed sites not
included.--Such term shall not include any site
which is on, or proposed for, the national
priorities list under section 105(a)(8)(B) of
the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (as in
effect on the date of the enactment of this
section).
``(C) Certain rules to apply.--For purposes
of this paragraph the rules of sections
1392(b)(4) and 1393(a)(9) shall apply.
``(d) Hazardous Substance.--For purposes of this section--
``(1) In general.--The term `hazardous substance'
means--
``(A) any substance which is a hazardous
substance as defined in section 101(14) of the
Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, and
``(B) any substance which is designated as
a hazardous substance under section 102 of such
Act.
``(2) Exception.--Such term shall not include any
substance with respect to which a removal or remedial
action is not permitted under section 104 of such Act
by reason of subsection (a)(3) thereof.
``(e) Deduction Recaptured as Ordinary Income on Sale,
Etc.--Solely for purposes of section 1245, in the case of
property to which a qualified environmental remediation
expenditure would have been capitalized but for this section--
``(1) the deduction allowed by this section for
such expenditure shall be treated as a deduction for
depreciation, and
``(2) such property (if not otherwise section 1245
property) shall be treated as section 1245 property
solely for purposes of applying section 1245 to such
deduction.
``(f) Coordination With Other Provisions.--Sections 280B
and 468 shall not apply to amounts which are treated as
expenses under this section.
``(g) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this section.
``(h) Termination.--This section shall not apply to
expenditures paid or incurred after December 31, 2000.''.
(b) Clerical Amendment.--The table of sections for part VI
of subchapter B of chapter 1 is amended by adding at the end
the following new item:
``Sec. 198. Expensing of environmental remediation costs.''.
(c) Effective Date.--The amendments made by this section
shall apply to expenditures paid or incurred after the date of
the enactment of this Act, in taxable years ending after such
date.
Subtitle F--Empowerment Zones, Enterprise Communities, Brownfields, and
Community Development Financial Institutions
CHAPTER 1--ADDITIONAL EMPOWERMENT ZONES
SEC. 951. ADDITIONAL EMPOWERMENT ZONES.
(a) In General.--Paragraph (2) of section 1391(b) (relating
to designations of empowerment zones and enterprise
communities) is amended--
(1) by striking ``9'' and inserting ``11'',
(2) by striking ``6'' and inserting ``8'', and
(3) by striking ``750,000'' and inserting
``1,000,000''.
(b) Special Rules for Application of Employment Credit.--
Subsection (b) of section 1396 (relating to empowerment zone
employment credit) is amended--
(1) by striking so much of the subsection as
precedes the table and inserting the following:
``(b) Applicable Percentage.--For purposes of this
section--
``(1) In general.--Except as provided in paragraph
(2), the term `applicable percentage' means the
percentage determined in accordance with the following
table:'', and
(2) by adding at the end the following new
paragraph:
``(2) Special rule.--With respect to each
empowerment zone designated pursuant to the amendments
made by the Taxpayer Relief Act of 1997 to section
1391(b)(2), the following table shall apply in lieu of
the table in paragraph (1):
``In the case of wages
paid or incurred during The applicable
calendar year-- percentage is:
2000 through 2004......................................... 20
2005...................................................... 15
2006...................................................... 10
2007...................................................... 5.''
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act,
except that designations of new empowerment zones made pursuant
to such amendments shall be made during the 180-day period
beginning on the date of the enactment of this Act. No
designation pursuant to such amendments shall take effect
before January 1, 2000.
CHAPTER 2--NEW EMPOWERMENT ZONES
SEC. 952. DESIGNATION OF NEW EMPOWERMENT ZONES.
(a) In General.--Section 1391 (relating to designation
procedure for empowerment zones and enterprise communities) is
amended by adding at the end the following new subsection:
``(g) Additional Designations Permitted.--
``(1) In general.--In addition to the areas
designated under subsection (a), the appropriate
Secretaries may designate in the aggregate an
additional 20 nominated areas as empowerment zones
under this section, subject to the availability of
eligible nominated areas. Of that number, not more than
15 may be designated in urban areas and not more than 5
may be designated in rural areas.
``(2) Period designations may be made and take
effect.--A designation may be made under this
subsection after the date of the enactment of this
subsection and before January 1, 1999.
``(3) Modifications to eligibility criteria, etc.--
``(A) Poverty rate requirement.--
``(i) In general.--A nominated area
shall be eligible for designation under
this subsection only if the poverty
rate for each population census tract
within the nominated area is not less
than 20 percent and the poverty rate
for at least 90 percent of the
population census tracts within the
nominated area is not less than 25
percent.
``(ii) Treatment of census tracts
with small populations.--A population
census tract with a population of less
than 2,000 shall be treated as having a
poverty rate of not less than 25
percent if--
``(I) more than 75 percent
of such tract is zoned for
commercial or industrial use,
and
``(II) such tract is
contiguous to 1 or more other
population census tracts which
have a poverty rate of not less
than 25 percent (determined
without regard to this clause).
``(iii) Exception for developable
sites.--Clause (i) shall not apply to
up to 3 noncontiguous parcels in a
nominated area which may be developed
for commercial or industrial purposes.
The aggregate area of noncontiguous
parcels to which the preceding sentence
applies with respect to any nominated
area shall not exceed 2,000 acres.
``(iv) Certain provisions not to
apply.--Section 1392(a)(4) (and so much
of paragraphs (1) and (2) of section
1392(b) as relate to section
1392(a)(4)) shall not apply to an area
nominated for designation under this
subsection.
``(v) Special rule for rural
empowerment zone.--The Secretary of
Agriculture may designate not more than
1 empowerment zone in a rural area
without regard to clause (i) if such
area satisfies emigration criteria
specified by the Secretary of
Agriculture.
``(B) Size limitation.--
``(i) In general.--The parcels
described in subparagraph (A)(iii)
shall not be taken into account in
determining whether the requirement of
subparagraph (A) or (B) of section
1392(a)(3) is met.
``(ii) Special rule for rural
areas.--If a population census tract
(or equivalent division under section
1392(b)(4)) in a rural area exceeds
1,000 square miles or includes a
substantial amount of land owned by the
Federal, State, or local government,
the nominated area may exclude such
excess square mileage or governmentally
owned land and the exclusion of that
area will not be treated as violating
the continuous boundary requirement of
section 1392(a)(3)(B).
``(C) Aggregate population limitation.--The
aggregate population limitation under the last
sentence of subsection (b)(2) shall not apply
to a designation under paragraph (1)(B).
``(D) Previously designated enterprise
communities may be included.--Subsection (e)(5)
shall not apply to any enterprise community
designated under subsection (a) that is also
nominated for designation under this
subsection.
``(E) Indian reservations may be
nominated.--
``(i) In general.--Section
1393(a)(4) shall not apply to an area
nominated for designation under this
subsection.
``(ii) Special rule.--An area in an
Indian reservation shall be treated as
nominated by a State and a local
government if it is nominated by the
reservation governing body (as
determined by the Secretary of
Interior).''
(b) Employment Credit Not To Apply to New Empowerment
Zones.--Section 1396 (relating to empowerment zone employment
credit) is amended by adding at the end the following new
subsection:
``(e) Credit Not To Apply to Empowerment Zones Designated
Under Section 1391(g).--This section shall be applied without
regard to any empowerment zone designated under section
1391(g).''
(c) Increased Expensing Under Section 179 Not To Apply in
Developable Sites.--Section 1397A (relating to increase in
expensing under section 179) is amended by adding at the end
the following new subsection:
``(c) Limitation.--For purposes of this section, qualified
zone property shall not include any property substantially all
of the use of which is in any parcel described in section
1391(g)(3)(A)(iii).''
(d) Conforming Amendments.--
(1) Subsections (e) and (f) of section 1391 are
each amended by striking ``subsection (a)'' and
inserting ``this section''.
(2) Section 1391(c) is amended by striking ``this
section'' and inserting ``subsection (a)''.
SEC. 953. VOLUME CAP NOT TO APPLY TO ENTERPRISE ZONE FACILITY BONDS
WITH RESPECT TO NEW EMPOWERMENT ZONES.
(a) In General.--Section 1394 (relating to tax-exempt
enterprise zone facility bonds) is amended by adding at the end
the following new subsection:
``(f) Bonds for Empowerment Zones Designated Under Section
1391(g).--
``(1) In general.--In the case of a new empowerment
zone facility bond--
``(A) such bond shall not be treated as a
private activity bond for purposes of section
146, and
``(B) subsection (c) of this section shall
not apply.
``(2) Limitation on amount of bonds.--
``(A) In general.--Paragraph (1) shall
apply to a new empowerment zone facility bond
only if such bond is designated for purposes of
this subsection by the local government which
nominated the area to which such bond relates.
``(B) Limitation on bonds designated.--The
aggregate face amount of bonds which may be
designated under subparagraph (A) with respect
to any empowerment zone shall not exceed--
``(i) $60,000,000 if such zone is
in a rural area,
``(ii) $130,000,000 if such zone is
in an urban area and the zone has a
population of less than 100,000, and
``(iii) $230,000,000 if such zone
is in an urban area and the zone has a
population of at least 100,000.
``(C) Special rules.--
``(i) Coordination with limitation
in subsection (c).--Bonds to which
paragraph (1) applies shall not be
taken into account in applying the
limitation of subsection (c) to other
bonds.
``(ii) Current refunding not taken
into account.--In the case of a
refunding (or series of refundings) of
a bond designated under this paragraph,
the refunding obligation shall be
treated as designated under this
paragraph (and shall not be taken into
account in applying subparagraph (B))
if--
``(I) the amount of the
refunding bond does not exceed
the outstanding amount of the
refunded bond, and
``(II) the refunded bond is
redeemed not later than 90 days
after the date of issuance of
the refunding bond.
``(3) New empowerment zone facility bond.--For
purposes of this subsection, the term `new empowerment
zone facility bond' means any bond which would be
described in subsection (a) if only empowerment zones
designated under section 1391(g) were taken into
account under sections 1397B and 1397C.''
(b) Effective Date.--The amendment made by this section
shall apply to obligations issued after the date of the
enactment of this Act.
SEC. 954. MODIFICATION TO ELIGIBILITY CRITERIA FOR DESIGNATION OF
FUTURE ENTERPRISE ZONES IN ALASKA OR HAWAII.
Section 1392 (relating to eligibility criteria) is amended
by adding at the end the following new subsection:
``(d) Special Eligibility for Nominated Areas Located in
Alaska or Hawaii.--A nominated area in Alaska or Hawaii shall
be treated as meeting the requirements of paragraphs (2), (3),
and (4) of subsection (a) if for each census tract or block
group within such area 20 percent or more of the families have
income which is 50 percent or less of the statewide median
family income (as determined under section 143).''.
CHAPTER 3--TREATMENT OF EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES
SEC. 955. MODIFICATIONS TO ENTERPRISE ZONE FACILITY BOND RULES FOR ALL
EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES.
(a) Modifications Relating to Enterprise Zone Business.--
Paragraph (3) of section 1394(b) (defining enterprise zone
business) is amended to read as follows:
``(3) Enterprise zone business.--
``(A) In general.--Except as modified in
this paragraph, the term `enterprise zone
business' has the meaning given such term by
section 1397B.
``(B) Modifications.--In applying section
1397B for purposes of this section--
``(i) Businesses in enterprise
communities eligible.--References in
section 1397B to empowerment zones
shall be treated as including
references to enterprise communities.
``(ii) Waiver of requirements
during startup period.--A business
shall not fail to be treated as an
enterprise zone business during the
startup period if--
``(I) as of the beginning
of the startup period, it is
reasonably expected that such
business will be an enterprise
zone business (as defined in
section 1397B as modified by
this paragraph) at the end of
such period, and
``(II) such business makes
bona fide efforts to be such a
business.
``(iii) Reduced requirements after
testing period.--A business shall not
fail to be treated as an enterprise
zone business for any taxable year
beginning after the testing period by
reason of failing to meet any
requirement of subsection (b) or (c) of
section 1397B if at least 35 percent of
the employees of such business for such
year are residents of an empowerment
zone or an enterprise community. The
preceding sentence shall not apply to
any business which is not a qualified
business by reason of paragraph (1),
(4), or (5) of section 1397B(d).
``(C) Definitions relating to subparagraph
(b).--For purposes of subparagraph (B)--
``(i) Startup period.--The term
`startup period' means, with respect to
any property being provided for any
business, the period before the first
taxable year beginning more than 2
years after the later of--
``(I) the date of issuance
of the issue providing such
property, or
``(II) the date such
property is first placed in
service after such issuance
(or, if earlier, the date which
is 3 years after the date
described in subclause (I)).
``(ii) Testing period.--The term
`testing period' means the first 3
taxable years beginning after the
startup period.
``(D) Portions of business may be
enterprise zone business.--The term `enterprise
zone business' includes any trades or
businesses which would qualify as an enterprise
zone business (determined after the
modifications of subparagraph (B)) if such
trades or businesses were separately
incorporated.''
(b) Modifications Relating to Qualified Zone Property.--
Paragraph (2) of section 1394(b) (defining qualified zone
property) is amended to read as follows:
``(2) Qualified zone property.--The term `qualified
zone property' has the meaning given such term by
section 1397C; except that--
``(A) the references to empowerment zones
shall be treated as including references to
enterprise communities, and
``(B) section 1397C(a)(2) shall be applied
by substituting `an amount equal to 15 percent
of the adjusted basis' for `an amount equal to
the adjusted basis'.''
(c) Effective Date.--The amendments made by this section
shall apply to obligations issued after the date of the
enactment of this Act.
SEC. 956. MODIFICATIONS TO ENTERPRISE ZONE BUSINESS DEFINITION FOR ALL
EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES.
(a) In General.--Section 1397B (defining enterprise zone
business) is amended--
(1) by striking ``80 percent'' in subsections
(b)(2) and (c)(1) and inserting ``50 percent'',
(2) by striking ``substantially all'' each place it
appears in subsections (b) and (c) and inserting ``a
substantial portion'',
(3) by striking ``, and exclusively related to,''
in subsections (b)(4) and (c)(3),
(4) by adding at the end of subsection (d)(2) the
following new flush sentence:
``For purposes of subparagraph (B), the lessor of the
property may rely on a lessee's certification that such
lessee is an enterprise zone business.'',
(5) by striking ``substantially all'' in subsection
(d)(3) and inserting ``at least 50 percent'', and
(6) by adding at the end the following new
subsection:
``(f) Treatment of Businesses Straddling Census Tract
Lines.--For purposes of this section, if--
``(1) a business entity or proprietorship uses real
property located within an empowerment zone,
``(2) the business entity or proprietorship also
uses real property located outside the empowerment
zone,
``(3) the amount of real property described in
paragraph (1) is substantial compared to the amount of
real property described in paragraph (2), and
``(4) the real property described in paragraph (2)
is contiguous to part or all of the real property
described in paragraph (1),
then all the services performed by employees, all business
activities, all tangible property, and all intangible property
of the business entity or proprietorship that occur in or is
located on the real property described in paragraphs (1) and
(2) shall be treated as occurring or situated in an empowerment
zone.''
(b) Effective Dates.--
(1) In general.--The amendments made by this
section shall apply to taxable years beginning on or
after the date of the enactment of this Act.
(2) Special rule for enterprise zone facility
bonds.--For purposes of section 1394(b) of the Internal
Revenue Code of 1986, the amendments made by this
section shall apply to obligations issued after the
date of the enactment of this Act.
Subtitle G--Other Provisions
SEC. 961. USE OF ESTIMATES OF SHRINKAGE FOR INVENTORY ACCOUNTING.
(a) In General.--Section 471 (relating to general rule for
inventories) is amended by redesignating subsection (b) as
subsection (c) and by inserting after subsection (a) the
following new subsection:
``(b) Estimates of Inventory Shrinkage Permitted.--A method
of determining inventories shall not be treated as failing to
clearly reflect income solely because it utilizes estimates of
inventory shrinkage that are confirmed by a physical count only
after the last day of the taxable year if--
``(1) the taxpayer normally does a physical count
of inventories at each location on a regular and
consistent basis, and
``(2) the taxpayer makes proper adjustments to such
inventories and to its estimating methods to the extent
such estimates are greater than or less than the actual
shrinkage.''.
(b) Effective Date.--
(1) In general.--The amendment made by this section
shall apply to taxable years ending after the date of
the enactment of this Act.
(2) Coordination with section 481.--In the case of
any taxpayer permitted by this section to change its
method of accounting to a permissible method for any
taxable year--
(A) such changes shall be treated as
initiated by the taxpayer,
(B) such changes shall be treated as made
with the consent of the Secretary of the
Treasury, and
(C) the period for taking into account the
adjustments under section 481 by reason of such
change shall be 4 years.
SEC. 962. ASSIGNMENT OF WORKMEN'S COMPENSATION LIABILITY ELIGIBLE FOR
EXCLUSION RELATING TO PERSONAL INJURY LIABILITY
ASSIGNMENTS.
(a) In General.--Subsection (c) of section 130 (relating to
certain personal injury liability assignments) is amended--
(1) by inserting ``, or as compensation under any
workmen's compensation act,'' after ``(whether by suit
or agreement)'' in the material preceding paragraph
(1),
(2) by inserting ``or the workmen's compensation
claim,'' after ``agreement,'' in paragraph (1), and
(3) by striking ``section 104(a)(2)'' in paragraph
(2)(D) and inserting ``paragraph (1) or (2) of section
104(a)''.
(b) Effective Date.--The amendments made by subsection (a)
shall apply to claims under workmen's compensation acts filed
after the date of the enactment of this Act.
SEC. 963. TAX-EXEMPT STATUS FOR CERTAIN STATE WORKER'S COMPENSATION ACT
COMPANIES.
(a) In General.--Section 501(c)(27) (relating to membership
organizations under workmen's compensation acts) is amended by
adding at the end the following:
``(B) Any organization (including a mutual
insurance company) if--
``(i) such organization is created by State
law and is organized and operated under State
law exclusively to--
``(I) provide workmen's
compensation insurance which is
required by State law or with respect
to which State law provides significant
disincentives if such insurance is not
purchased by an employer, and
``(II) provide related coverage
which is incidental to workmen's
compensation insurance,
``(ii) such organization must provide
workmen's compensation insurance to any
employer in the State (for employees in the
State or temporarily assigned out-of-State)
which seeks such insurance and meets other
reasonable requirements relating thereto,
``(iii)(I) the State makes a financial
commitment with respect to such organization
either by extending the full faith and credit
of the State to the initial debt of such
organization or by providing the initial
operating capital of such organization, and
(II) in the case of periods after the date of
enactment of this subparagraph, the assets of
such organization revert to the State upon
dissolution or State law does not permit the
dissolution of such organization, and
``(iv) the majority of the board of
directors or oversight body of such
organization are appointed by the chief
executive officer or other executive branch
official of the State, by the State
legislature, or by both.''.
(b) Conforming Amendments.--Section 501(c)(27) is amended
by inserting ``(A)'' after ``(27)'', by redesignating
subparagraphs (A), (B), and (C) as clauses (i), (ii), and
(iii), respectively, and by redesignating clauses (i) and (ii)
of subparagraphs (B) and (C) (before redesignation) as
subclauses (I) and (II), respectively.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 964. ELECTION FOR 1987 PARTNERSHIPS TO CONTINUE EXCEPTION FROM
TREATMENT OF PUBLICLY TRADED PARTNERSHIPS AS
CORPORATIONS.
(a) In General.--Section 7704 is amended by adding at the
end the following new subsection:
``(g) Exception for Electing 1987 Partnerships.--
``(1) In general.--Subsection (a) shall not apply
to an electing 1987 partnership.
``(2) Electing 1987 partnership.--For purposes of
this subsection, the term `electing 1987 partnership'
means any publicly traded partnership if--
``(A) such partnership is an existing
partnership (as defined in section 10211(c)(2)
of the Revenue Reconciliation Act of 1987),
``(B) subsection (a) has not applied (and
without regard to subsection (c)(1) would not
have applied) to such partnership for all prior
taxable years beginning after December 31,
1987, and before January 1, 1998, and
``(C) such partnership elects the
application of this subsection, and consents to
the application of the tax imposed by paragraph
(3), for its first taxable year beginning after
December 31, 1997.
A partnership which, but for this sentence, would be
treated as an electing 1987 partnership shall cease to
be so treated (and the election under subparagraph (C)
shall cease to be in effect) as of the 1st day after
December 31, 1997, on which there has been an addition
of a substantial new line of business with respect to
such partnership.
``(3) Additional tax on electing partnerships.--
``(A) Imposition of tax.--There is hereby
imposed for each taxable year on the income of
each electing 1987 partnership a tax equal to
3.5 percent of such partnership's gross income
for the taxable year from the active conduct of
trades and businesses by the partnership.
``(B) Adjustments in the case of tiered
partnerships.--For purposes of this paragraph,
in the case of a partnership which is a partner
in another partnership, the gross income
referred to in subparagraph (A) shall include
the partnership's distributive share of the
gross income of such other partnership from the
active conduct of trades and businesses of such
other partnership. A similar rule shall apply
in the case of lower-tiered partnerships.
``(C) Treatment of tax.--For purposes of
this title, the tax imposed by this paragraph
shall be treated as imposed by chapter 1 other
than for purposes of determining the amount of
any credit allowable under chapter 1.
``(4) Election.--An election and consent under this
subsection shall apply to the taxable year for which
made and all subsequent taxable years unless revoked by
the partnership. Such revocation may be made without
the consent of the Secretary, but, once so revoked, may
not be reinstated.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 965. EXCLUSION FROM UNRELATED BUSINESS TAXABLE INCOME FOR CERTAIN
SPONSORSHIP PAYMENTS.
(a) In General.--Section 513 (relating to unrelated trade
or business income) is amended by adding at the end the
following new subsection:
``(i) Treatment of Certain Sponsorship Payments.--
``(1) In general.--The term `unrelated trade or
business' does not include the activity of soliciting
and receiving qualified sponsorship payments.
``(2) Qualified sponsorship payments.--For purposes
of this subsection--
``(A) In general.--The term `qualified
sponsorship payment' means any payment made by
any person engaged in a trade or business with
respect to which there is no arrangement or
expectation that such person will receive any
substantial return benefit other than the use
or acknowledgement of the name or logo (or
product lines) of such person's trade or
business in connection with the activities of
the organization that receives such payment.
Such a use or acknowledgement does not include
advertising such person's products or services
(including messages containing qualitative or
comparative language, price information, or
other indications of savings or value, an
endorsement, or an inducement to purchase,
sell, or use such products or services).
``(B) Limitations.--
``(i) Contingent payments.--The
term `qualified sponsorship payment'
does not include any payment if the
amount of such payment is contingent
upon the level of attendance at one or
more events, broadcast ratings, or
other factors indicating the degree of
public exposure to one or more events.
``(ii) Safe harbor does not apply
to periodicals and qualified convention
and trade show activities.--The term
`qualified sponsorship payment' does
not include--
``(I) any payment which
entitles the payor to the use
or acknowledgement of the name
or logo (or product lines) of
the payor's trade or business
in regularly scheduled and
printed material published by
or on behalf of the payee
organization that is not
related to and primarily
distributed in connection with
a specific event conducted by
the payee organization, or
``(II) any payment made in
connection with any qualified
convention or trade show
activity (as defined in
subsection (d)(3)(B)).
``(3) Allocation of portions of single payment.--
For purposes of this subsection, to the extent that a
portion of a payment would (if made as a separate
payment) be a qualified sponsorship payment, such
portion of such payment and the other portion of such
payment shall be treated as separate payments.''.
(b) Effective Date.--The amendment made by this section
shall apply to payments solicited or received after December
31, 1997.
SEC. 966. ASSOCIATIONS OF HOLDERS OF TIMESHARE INTERESTS TO BE TAXED
LIKE OTHER HOMEOWNERS ASSOCIATIONS.
(a) Timeshare Associations Included as Homeowner
Associations.--
(1) In general.--Paragraph (1) of section 528(c)
(defining homeowners association) is amended--
(A) by striking ``or a residential real
estate management association'' and inserting
``, a residential real estate management
association, or a timeshare association'' in
the material preceding subparagraph (A),
(B) by striking ``or'' at the end of clause
(i) of subparagraph (B), by striking the period
at the end of clause (ii) of subparagraph (B)
and inserting ``, or'', and by adding at the
end of subparagraph (B) the following new
clause:
``(iii) owners of timeshare rights
to use, or timeshare ownership
interests in, association property in
the case of a timeshare association,'',
and
(C) by inserting ``and, in the case of a
timeshare association, for activities provided
to or on behalf of members of the association''
before the comma at the end of subparagraph
(C).
(2) Timeshare association defined.--Subsection (c)
of section 528 is amended by redesignating paragraph
(4) as paragraph (5) and by inserting after paragraph
(3) the following new paragraph:
``(4) Timeshare association.--The term `timeshare
association' means any organization (other than a
condominium management association) meeting the
requirement of subparagraph (A) of paragraph (1) if any
member thereof holds a timeshare right to use, or a
timeshare ownership interest in, real property
constituting association property.''.
(b) Exempt Function Income.--Paragraph (3) of section
528(d) is amended by striking ``or'' at the end of subparagraph
(A), by striking the period at the end of subparagraph (B) and
inserting ``, or'', and by adding at the end the following new
subparagraph:
``(C) owners of timeshare rights to use, or
timeshare ownership interests in, real property
in the case of a timeshare association.''.
(c) Association Property.--Paragraph (5) of section 528(c),
as redesignated by subsection (a)(2), is amended by adding at
the end the following new flush sentence:
``In the case of a timeshare association, such term
includes property in which the timeshare association,
or members of the association, have rights arising out
of recorded easements, covenants, or other recorded
instruments to use property related to the timeshare
project.''.
(d) Rate of Tax.--Subsection (b) of section 528 (relating
to certain homeowners associations) is amended by inserting
before the period ``(32 percent of such income in the case of a
timeshare association)''.
(e) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1996.
SEC. 967. ADDITIONAL ADVANCE REFUNDING OF CERTAIN VIRGIN ISLAND BONDS.
Subclause (I) of section 149(d)(3)(A)(i) of the Internal
Revenue Code of 1986 shall not apply to the second advance
refunding of any issue of the Virgin Islands which was first
advance refunded before June 9, 1997, if the debt provisions of
the refunding bonds are changed to repeal the priority first
lien requirement of the refunded bonds.
SEC. 968. NONRECOGNITION OF GAIN ON SALE OF STOCK TO CERTAIN FARMERS'
COOPERATIVES.
(a) In General.--Section 1042 (relating to sales of stock
to employee stock ownership plans or certain cooperatives) is
amended by adding at the end the following new subsection:
``(g) Application of Section to Sales of Stock in
Agricultural Refiners and Processors to Eligible Farm
Cooperatives.--
``(1) In general.--This section shall apply to the
sale of stock of a qualified refiner or processor to an
eligible farmers' cooperative.
``(2) Qualified refiner or processor.--For purposes
of this subsection, the term `qualified refiner or
processor' means a domestic corporation--
``(A) substantially all of the activities
of which consist of the active conduct of the
trade or business of refining or processing
agricultural or horticultural products, and
``(B) which, during the 1-year period
ending on the date of the sale, purchases
morethan one-half of such products to be refined or processed from--
``(i) farmers who make up the
eligible farmers' cooperative which is
purchasing stock in the corporation in
a transaction to which this subsection
is to apply, or
``(ii) such cooperative.
``(3) Eligible farmers' cooperative.--For purposes
of this section, the term `eligible farmers'
cooperative' means an organization to which part I of
subchapter T applies and which is engaged in the
marketing of agricultural or horticultural products.
``(4) Special rules.--In applying this section to a
sale to which paragraph (1) applies--
``(A) the eligible farmers' cooperative
shall be treated in the same manner as a
cooperative described in subsection (b)(1)(B),
``(B) subsection (b)(2) shall be applied by
substituting `100 percent' for `30 percent'
each place it appears,
``(C) the determination as to whether any
stock in the domestic corporation is a
qualified security shall be made without regard
to whether the stock is an employer security or
to subsection (c)(1)(A), and
``(D) paragraphs (2)(D) and (7) of
subsection (c) shall not apply.''.
(b) Effective Date.--The amendment made by this section
shall apply to sales after December 31, 1997.
SEC. 969. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR
INDIVIDUALS SUBJECT TO FEDERAL HOURS OF SERVICE.
(a) In General.--Section 274(n) (relating to only 50
percent of meal and entertainment expenses allowed as
deduction) is amended by adding at the end the following new
paragraph:
``(3) Special rule for individuals subject to
federal hours of service.--
``(A) In general.--In the case of any
expenses for food or beverages consumed while
away from home (within the meaning of section
162(a)(2)) by an individual during, or incident
to, the period of duty subject to the hours of
service limitations of the Department of
Transportation, paragraph (1) shall be applied
by substituting `the applicable percentage' for
`50 percent'.
``(B) Applicable percentage.--For purposes
of this paragraph, the term `applicable
percentage' means the percentage determined
under the following table:
``For taxable years be- The applicable
ginning in calendar year-- percentage is--
1998 or 1999.............................................. 55
2000 or 2001.............................................. 60
2002 or 2003.............................................. 65
2004 or 2005.............................................. 70
2006 or 2007.............................................. 75
2008 or thereafter........................................ 80.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1997.
SEC. 970. CLARIFICATION OF DE MINIMIS FRINGE BENEFIT RULES TO NO-CHARGE
EMPLOYEE MEALS.
(a) In General.--Paragraph (2) of section 132(e) (defining
de minimis fringe) is amended by adding at the end the
following new sentence: ``For purposes of subparagraph (B), an
employee entitled under section 119 to exclude the value of a
meal provided at such facility shall be treated as having paid
an amount for such meal equal to the direct operating costs of
the facility attributable to such meal.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 971. EXEMPTION OF THE INCREMENTAL COST OF A CLEAN FUEL VEHICLE
FROM THE LIMITS ON DEPRECIATION FOR VEHICLES.
(a) In General.--Section 280F(a)(1) (relating to limiting
depreciation on luxury automobiles) is amended by adding at the
end the following new subparagraph:
``(C) Special rule for certain clean-fuel
passenger automobiles.--
``(i) Modified automobiles.--In the
case of a passenger automobile which is
propelled by a fuel which is not a
clean-burning fuel and to which is
installed qualified clean-fuel vehicle
property (as defined in section
179A(c)(1)(A)) for purposes of
permitting such vehicle to be propelled
by a clean burning fuel (as defined in
section 179A(e)(1)), subparagraph (A)
shall not apply to the cost of the
installed qualified clean burning
vehicle property.
``(ii) Purpose built passenger
vehicles.--In the case of a purpose
built passenger vehicle (as defined in
section 4001(a)(2)(C)(ii)), each of the
annual limitations specified in
subparagraph (A) shall be tripled.''.
(b) Effective Date.--The amendments made by this section
shall apply to property placed in service after the date of
enactment of this Act and before January 1, 2005.
SEC. 972. TEMPORARY SUSPENSION OF TAXABLE INCOME LIMIT ON PERCENTAGE
DEPLETION FOR MARGINAL PRODUCTION.
(a) In General.--Paragraph (6) of section 613A(c) is
amended by adding at the end the following new subparagraph:
``(H) Temporary suspension of taxable
income limit with respect to marginal
production.--The second sentence of subsection
(a) of section 613 shall not apply to so much
of the allowance for depletion as is determined
under subparagraph (A) for any taxable year
beginning after December 31, 1997, and before
January 1, 2000.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1997.
SEC. 973. INCREASE IN STANDARD MILEAGE RATE EXPENSE DEDUCTION FOR
CHARITABLE USE OF PASSENGER AUTOMOBILE.
(a) In General.--Section 170(i) (relating to standard
mileage rate for use of passenger automobile) is amended to
read as follows:
``(i) Standard Mileage Rate for Use of Passenger
Automobile.--For purposes of computing the deduction under this
section for use of a passenger automobile, the standard mileage
rate shall be 14 cents per mile.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1997.
SEC. 974. CLARIFICATION OF TREATMENT OF CERTAIN RECEIVABLES PURCHASED
BY COOPERATIVE HOSPITAL SERVICE ORGANIZATIONS.
(a) In General.--Subparagraph (A) of section 501(e)(1) is
amended by inserting ``(including the purchase of patron
accounts receivable on a recourse basis)'' after ``billing and
collection''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1996.
SEC. 975. DEDUCTION IN COMPUTING ADJUSTED GROSS INCOME FOR EXPENSES IN
CONNECTION WITH SERVICE PERFORMED BY CERTAIN
OFFICIALS.
(a) In General.--Paragraph (2) of section 62(a) (defining
adjusted gross income) is amended by adding at the end the
following new subparagraph:
``(C) Certain expenses of officials.--The
deductions allowed by section 162 which consist
of expenses paid or incurred with respect to
services performed by an official as an
employee of a State or a political subdivision
thereof in a position compensated in whole or
in part on a fee basis.''.
(b) Effective Date.--The amendment made by this section
shall apply to expenses paid or incurred in taxable years
beginning after December 31, 1986.
SEC. 976. COMBINED EMPLOYMENT TAX REPORTING DEMONSTRATION PROJECT.
(a) In General.--The Secretary of the Treasury shall
provide for a demonstration project to assess the feasibility
and desirability of expanding combined Federal and State tax
reporting.
(b) Description of Demonstration Project.--The
demonstration project under subsection (a) shall be--
(1) carried out between the Internal Revenue
Service and the State of Montana for a period ending
with the date which is 5 years after the date of the
enactment of this Act,
(2) limited to the reporting of employment taxes,
and
(3) limited to the disclosure of the taxpayer
identity (as defined in section 6103(b)(6) of such
Code) and the signature of the taxpayer.
(c) Conforming Amendment.--Section 6103(d) is amended by
adding at the end the following new paragraph:
``(5) Disclosure for certain combined reporting
project.--The Secretary shall disclose taxpayer
identities and signatures for purposes of the
demonstration project described in section 967 of the
Taxpayer Relief Act of 1997.''.
SEC. 977. ELECTIVE CARRYBACK OF EXISTING CARRYOVERS OF NATIONAL
RAILROAD PASSENGER CORPORATION.
(a) Elective Carryback.--
(1) In general.--If the National Railroad Passenger
Corporation (in this section referred to as the
``Corporation'')--
(A) makes an election under this section
for its first taxable year ending after
September 30, 1997, and
(B) agrees to the conditions specified in
paragraph (2),
then the Corporation shall be treated as having made a
payment of the tax imposed by chapter 1 of the Internal
Revenue Code of 1986 for such first taxable year and
the succeeding taxable year in an amount (for each such
taxable year) equal to 50 percent of the amount
determined under paragraph (3). Each such payment shall
be treated as having been made by the Corporation on
the last day prescribed by law (without regard to
extensions) for filing its return of tax under chapter
1 of such Code for the taxable year to which such
payment relates.
(2) Conditions.--
(A) In general.--This section shall only
apply to the Corporation if it agrees (in such
manner as the Secretary of the Treasury or his
delegate may prescribe) to--
(i) except as provided in clause
(ii), use any refund of the payment
described in paragraph (1) (and any
interest thereon) solely to finance
qualified expenses of the Corporation,
and
(ii) make the payments to non-
Amtrak States as described in
subsection (c).
(B) Repayment.--
(i) In general.--The Corporation
shall repay to the United States any
amount not used in accordance with this
paragraph and any amount remaining
unused as of January 1, 2010.
(ii) Special rules.--For purposes
of clause (i)--
(I) no amount shall be
treated as remaining unused as
of January 1, 2010, if it is
obligated as of such date for a
qualified expense, and
(II) the Corporation shall
not be treated as failing to
meet the requirements of clause
(i) by reason of investing any
amount for a temporary period.
(3) Amount.--For purposes of paragraph (1)--
(A) In general.--The amount determined
under this paragraph shall be the lesser of--
(i) 35 percent of the Corporation's
existing qualified carryovers, or
(ii) the Corporation's net tax
liability for the carryback period.
(B) Dollar limit.--Such amount shall not
exceed $2,323,000,000.
(b) Existing Qualified Carryovers; Net Tax Liability.--For
purposes of this section--
(1) Existing qualified carryovers.--The term
``existing qualified carryovers'' means the aggregate
of the amounts which are net operating loss carryovers
under section 172(b) of the Internal Revenue Code of
1986 to the Corporation's first taxable year ending
after September 30, 1997.
(2) Net tax liability for carryback period.--
(A) In general.--The Corporation's net tax
liability for the carryback period is the
aggregate of the net tax liability of the
Corporation's railroad predecessors for taxable
years in the carryback period.
(B) Net tax liability.--The term ``net tax
liability'' means, with respect to any taxable
year, the amount of the tax imposed by chapter
1 of the Internal Revenue Code of 1986 (or any
corresponding provision of prior law) for such
taxable year, reduced by the sum of the credits
allowable against such tax under such Code (or
any corresponding provision of prior law).
(C) Carryback period.--The term ``carryback
period'' means the period--
(i) which begins with the first
taxable year of any railroad
predecessor beginning before January 1,
1971, for which there is a net tax
liability, and
(ii) which ends with the last
taxable year of any railroad
predecessor beginning before January 1,
1971.
(3) Railroad predecessor.--
(A) In general.--The term ``railroad
predecessor'' means--
(i) any railroad which entered into
a contract under section 401 or 404(a)
of the Rail Passenger Service Act of
1970 relieving the railroad of its
entire responsibility for the provision
of intercity rail passenger service,
and
(ii) any predecessor thereof.
(B) Consolidated returns.--If any railroad
described in subparagraph (A) was a member of
an affiliated group which filed a consolidated
return for any taxable year in the carryback
period, each member of such group shall be
treated as a railroad predecessor for such
year.
(c) Payments to Non-Amtrak States.--
(1) In general.--Within 30 days after receipt of
any refund of any payment described in subsection
(a)(1), the Corporation shall pay to each non-Amtrak
State an amount equal to 1 percent of the amount of
such refund.
(2) Use of payment.--Each non-Amtrak State shall
use the payment described in paragraph (1) (and any
interest thereon) solely to finance qualified expenses
of the State.
(3) Repayment.--A non-Amtrak State shall pay to the
United States--
(A) any portion of the payment received by
the State under paragraph (1) (and any interest
thereon) which is used for a purpose other than
to finance qualified expenses of the State or
which remains unused as of January 1, 2010, or
(B) if such State ceases to be a non-Amtrak
State, the portion of such payment (and any
interest thereon) remaining as of the date of
the cessation.
Rules similar to the rules of subsection (a)(2)(B)
shall apply for purposes of this paragraph.
(d) Tax Consequences.--
(1) Reduction in carryovers.--If the Corporation
elects the application of this section, the
Corporation's existing qualified carryovers shall be
reduced by an amount equal to the amount determined
under subsection (a)(3) divided by 0.35.
(2) Reduction in tax paid by railroad
predecessors.--
(A) In general.--The Secretary of the
Treasury or his delegate shall appropriately
adjust the tax account of each railroad
predecessor to reduce the net tax liability of
such predecessor for taxable years beginning in
the carryback period which is offset by reason
of the application of this section.
(B) FIFO ordering rule.--The Secretary
shall make the adjustments under subparagraph
(A) first for the earliest year in the
carryback period and then for each subsequent
year in such period.
(C) No effect on other taxpayers.--In no
event shall any taxpayer other than the
Corporation be allowed a refund or credit by
reason of this section.
(D) Waiver of limitations.--If the
adjustment under subparagraph (A) is barred by
the operation of any law or rule of law, such
law or rule of law shall be waived solely for
purposes of making such adjustment.
(3) Tax treatment of expenditures.--With respect to
any payment by the Corporation of qualified expenses
described in subsection (e)(1)(A) during any taxable
year from the amount of any refund of the payment
described in subsection (a)(1)--
(A) no deduction shall be allowed to the
Corporation with respect to any amount paid or
incurred which is attributable to such amount,
and
(B) the basis of any property shall be
reduced by the portion of the cost of such
property which is attributable to such amount.
(4) Payments to a non-amtrak state.--No deduction
shall be allowed to the Corporation under chapter 1 of
the Internal Revenue Code of 1986 for any payment to a
non-Amtrak State required under subsection
(a)(2)(A)(ii).
(e) Definitions.--For purposes of this section--
(1) Qualified expenses.--The term ``qualified
expenses'' means expenses incurred for--
(A) in the case of the Corporation--
(i) the acquisition of equipment,
rolling stock, and other capital
improvements, the upgrading of
maintenance facilities, and the
maintenance of existing equipment, in
intercity passenger rail service, and
(ii) the payment of interest and
principal on obligations incurred for
such acquisition, upgrading, and
maintenance, and
(B) in the case of a non-Amtrak State--
(i) the acquisition of equipment,
rolling stock, and other capital
improvements, the upgrading of
maintenance facilities, and the
maintenance of existing equipment, in
intercity passenger rail service,
(ii) the acquisition of equipment,
rolling stock, and other capital
improvements, the upgrading of
maintenance facilities, and the
maintenance of existing equipment, in
intercity bus service,
(iii) the purchase of intercity
passenger rail services from the
Corporation, and
(iv) the payment of interest and
principal on obligations incurred for
such acquisition, upgrading,
maintenance, and purchase.
In the case of a non-Amtrak State which provides its
own intercity passenger rail service on the date of the
enactment of this paragraph, subparagraph (B) shall be
applied by only taking into account clauses (i) and
(iv).
(2) Non-amtrak state.--The term ``non-Amtrak
State'' means, with respect to any payment, any State
which does not receive intercity passenger rail service
from the Corporation at any time during the period
beginning on the date of the enactment of this Act and
ending on the date of the payment.
(f) Authorizing Reform Required.--
(1) In general.--The Secretary of the Treasury
shall not make payment of any refund of any payment
described in subsection (a)(1) earlier than the date of
the enactment of Federal legislation, other than
legislation included in this section, which is enacted
after July 29, 1997, and which authorizes reforms of
the National Railroad Passenger Corporation.
(2) No interest.--Notwithstanding any other
provision of law, if the payment of any refund is
delayed by reason of paragraph (1), no interest shall
accrue with respect to such payment prior to the 45th
day following the date of the enactment of Federal
legislation described in paragraph (1).
(3) Estimate of revenue.--For purposes of
estimating revenues under budget reconciliation, the
impact of this section on Federal revenues shall be
determined without regard to this subsection.
Subtitle H--Extension of Duty-Free Treatment Under Generalized System
of Preferences
SEC. 981. GENERALIZED SYSTEM OF PREFERENCES.
(a) Extension of Duty-Free Treatment Under System.--Section
505 of the Trade Act of 1974 (19 U.S.C. 2465) is amended by
striking ``May 31, 1997'' and inserting ``June 30, 1998''.
(b) Retroactive Application for Certain Liquidations and
Reliquidations.--
(1) In general.--Notwithstanding section 514 of the
Tariff Act of 1930 or any other provision of law and
subject to paragraph (2), the entry--
(A) of any article to which duty-free
treatment under title V of the Trade Act of
1974 would have applied if the entry had been
made on May 31, 1997, and
(B) that was made after May 31, 1997, and
before the date of the enactment of this Act,
shall be liquidated or reliquidated as free of duty,
and the Secretary of the Treasury shall refund any duty
paid with respect to such entry. As used in this
subsection, the term ``entry'' includes a withdrawal
from warehouse for consumption.
(2) Requests.--Liquidation or reliquidation may be
made under paragraph (1) with respect to an entry only
if a request therefor is filed with the Customs
Service, within 180 days after the date of the
enactment of this Act, that contains sufficient
information to enable the Customs Service--
(A) to locate the entry; or
(B) to reconstruct the entry if it cannot
be located.
TITLE X--REVENUES
Subtitle A--Financial Products
SEC. 1001. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL
POSITIONS.
(a) In General.--Part IV of subchapter P of chapter 1 is
amended by adding at the end the following new section:
``SEC. 1259. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL
POSITIONS.
``(a) In General.--If there is a constructive sale of an
appreciated financial position--
``(1) the taxpayer shall recognize gain as if such
position were sold, assigned, or otherwise terminated
at its fair market value on the date of such
constructive sale (and any gain shall be taken into
account for the taxable year which includes such date),
and
``(2) for purposes of applying this title for
periods after the constructive sale--
``(A) proper adjustment shall be made in
the amount of any gain or loss subsequently
realized with respect to such position for any
gain taken into account by reason of paragraph
(1), and
``(B) the holding period of such position
shall be determined as if such position were
originally acquired on the date of such
constructive sale.
``(b) Appreciated Financial Position.--For purposes of this
section--
``(1) In general.--Except as provided in paragraph
(2), the term `appreciated financial position' means
any position with respect to any stock, debt
instrument, or partnership interest if there would be
gain were such position sold, assigned, or otherwise
terminated at its fair market value.
``(2) Exceptions.--The term `appreciated financial
position' shall not include--
``(A) any position with respect to debt
if--
``(i) the debt unconditionally
entitles the holder to receive a
specified principal amount,
``(ii) the interest payments (or
other similar amounts) with respect to
such debt meet the requirements of
clause (i) of section 860G(a)(1)(B),
and
``(iii) such debt is not
convertible (directly or indirectly)
into stock of the issuer or any related
person, and
``(B) any position which is marked to
market under any provision of this title or the
regulations thereunder.
``(3) Position.--The term `position' means an
interest, including a futures or forward contract,
short sale, or option.
``(c) Constructive Sale.--For purposes of this section--
``(1) In general.--A taxpayer shall be treated as
having made a constructive sale of an appreciated
financial position if the taxpayer (or a related
person)--
``(A) enters into a short sale of the same
or substantially identical property,
``(B) enters into an offsetting notional
principal contract with respect to the same or
substantially identical property,
``(C) enters into a futures or forward
contract to deliver the same or substantially
identical property,
``(D) in the case of an appreciated
financial position that is a short sale or a
contract described in subparagraph (B) or (C)
with respect to any property, acquires the same
or substantially identical property, or
``(E) to the extent prescribed by the
Secretary in regulations, enters into 1 or more
other transactions (or acquires 1 or more
positions) that have substantially the same
effect as a transaction described in any of the
preceding subparagraphs.
``(2) Exception for sales of nonpublicly traded
property.--The term `constructive sale' shall not
include any contract for sale of any stock, debt
instrument, or partnership interest which is not a
marketable security (as defined in section 453(f)) if
the contract settles within 1 year after the date such
contract is entered into.
``(3) Exception for certain closed transactions.--
``(A) In general.--In applying this
section, there shall be disregarded any
transaction (which would otherwise be treated
as a constructive sale) during the taxable year
if--
``(i) such transaction is closed
before the end of the 30th day after
the close of such taxable year,
``(ii) the taxpayer holds the
appreciated financial position
throughout the 60-day period beginning
on the date such transaction is closed,
and
``(iii) at no time during such 60-
day period is the taxpayer's risk of
loss with respect to such position
reduced by reason of a circumstance
which would be described in section
246(c)(4) if references to stock
included references to such position.
``(B) Treatment of positions which are
reestablished.--If--
``(i) a transaction, which would
otherwise be treated as a constructive
sale of an appreciated financial
position, is closed during the taxable
year or during the 30 days thereafter,
and
``(ii) another substantially
similar transaction is entered into
during the 60-day period beginning on
the date the transaction referred to in
clause (i) is closed--
``(I) which also would
otherwise be treated as a
constructive sale of such
position,
``(II) which is closed
before the 30th day after the
close of the taxable year in
which the transaction referred to in clause (i) occurs, and
``(III) which meets the
requirements of clauses (ii)
and (iii) of subparagraph (A),
the transaction referred to in clause (ii)
shall be disregarded for purposes of
determining whether the requirements of
subparagraph (A)(iii) are met with respect to
the transaction described in clause (i).
``(4) Related person.--A person is related to
another person with respect to a transaction if--
``(A) the relationship is described in
section 267(b) or 707(b), and
``(B) such transaction is entered into with
a view toward avoiding the purposes of this
section.
``(d) Other Definitions.--For purposes of this section--
``(1) Forward contract.--The term `forward
contract' means a contract to deliver a substantially
fixed amount of property for a substantially fixed
price.
``(2) Offsetting notional principal contract.--The
term `offsetting notional principal contract' means,
with respect to any property, an agreement which
includes--
``(A) a requirement to pay (or provide
credit for) all or substantially all of the
investment yield (including appreciation) on
such property for a specified period, and
``(B) a right to be reimbursed for (or
receive credit for) all or substantially all of
any decline in the value of such property.
``(e) Special Rules.--
``(1) Treatment of subsequent sale of position
which was deemed sold.--If--
``(A) there is a constructive sale of any
appreciated financial position,
``(B) such position is subsequently
disposed of, and
``(C) at the time of such disposition, the
transaction resulting in the constructive sale
of such position is open with respect to the
taxpayer or any related person,
solely for purposes of determining whether the taxpayer
has entered into a constructive sale of any other
appreciated financial position held by the taxpayer,
the taxpayer shall be treated as entering into such
transaction immediately after such disposition.For
purposes of the preceding sentence, an assignment or other termination
shall be treated as a disposition.
``(2) Certain trust instruments treated as stock.--
For purposes of this section, an interest in a trust
which is actively traded (within the meaning of section
1092(d)(1)) shall be treated as stock unless
substantially all (by value) of the property held by
the trust is debt described in subsection (b)(2)(A).
``(3) Multiple positions in property.--If a
taxpayer holds multiple positions in property, the
determination of whether a specific transaction is a
constructive sale and, if so, which appreciated
financial position is deemed sold shall be made in the
same manner as actual sales.
``(f) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this section.''.
(b) Election of Mark to Market for Dealers in Commodities
and for Traders in Securities or Commodities.--Section 475
(relating to mark to market accounting method for dealers in
securities) is amended by redesignating subsection (e) as
subsection (g) and by inserting after subsection (d) the
following new subsections:
``(e) Election of Mark to Market for Dealers in
Commodities.--
``(1) In general.--In the case of a dealer in
commodities who elects the application of this
subsection, this section shall apply to commodities
held by such dealer in the same manner as this section
applies to securities held by a dealer in securities.
``(2) Commodity.--For purposes of this subsection
and subsection (f), the term `commodity' means--
``(A) any commodity which is actively
traded (within the meaning of section
1092(d)(1));
``(B) any notional principal contract with
respect to any commodity described in
subparagraph (A);
``(C) any evidence of an interest in, or a
derivative instrument in, any commodity
described in subparagraph (A) or (B), including
any option, forward contract, futures contract,
short position, and any similar instrument in
such a commodity; and
``(D) any position which--
``(i) is not a commodity described
in subparagraph (A), (B), or (C),
``(ii) is a hedge with respect to
such a commodity, and
``(iii) is clearly identified in
the taxpayer's records as being
described in this subparagraph before
the close of the day on which it was
acquired or entered into (or such other
time as the Secretary may by
regulations prescribe).
``(3) Election.--An election under this subsection
may be made without the consent of the Secretary. Such
an election, once made, shall apply to the taxable year
for which made and all subsequent taxable years unless
revoked with the consent of the Secretary.
``(f) Election of Mark to Market for Traders in Securities
or Commodities.--
``(1) Traders in securities.--
``(A) In general.--In the case of a person
who is engaged in a trade or business as a
trader in securities and who elects to have
this paragraph apply to such trade or
business--
``(i) such person shall recognize
gain or loss on any security held in
connection with such trade or business
at the close of any taxable year as if
such security were sold for its fair
market value on the last business day
of such taxable year, and
``(ii) any gain or loss shall be
taken into account for such taxable
year.
Proper adjustment shall be made in the amount
of any gain or loss subsequently realized for
gain or loss taken into account under the
preceding sentence. The Secretary may provide
by regulations for the application of this
subparagraph at times other than the times
provided in this subparagraph.
``(B) Exception.--Subparagraph (A) shall
not apply to any security--
``(i) which is established to the
satisfaction of the Secretary as having
no connection to the activities of such
person as a trader, and
``(ii) which is clearly identified
in such person's records as being
described in clause (i) before the
close of the day on which it was
acquired, originated, or entered into
(or such other time as the Secretary
may by regulations prescribe).
If a security ceases to be described in clause
(i) at any time after it was identified as such
under clause (ii), subparagraph (A) shall apply
to any changes in value of the security
occurring after the cessation.
``(C) Coordination with section 1259.--Any
security to which subparagraph (A) applies and
which was acquired in the normal course of the
taxpayer's activities as a trader in securities
shall not be taken into account in applying
section 1259 to any position to which
subparagraph (A) does not apply.
``(D) Other rules to apply.--Rules similar
to the rules of subsections (b)(4) and (d)
shall apply to securities held by a person in
any trade or business with respect to which an
election under this paragraph is in effect.
``(2) Traders in commodities.--In the case of a
person who is engaged in a trade or business as a
trader in commodities and who elects to have this
paragraph apply to such trade or business, paragraph
(1) shall apply to commodities held by such trader in
connection with such trade or business in the same
manner as paragraph (1) applies to securities held by a
trader in securities.
``(3) Election.--The elections under paragraphs (1)
and (2) may be made separately for each trade or
business and without the consent of the Secretary. Such
an election, once made, shall apply to the taxable year
for which made and all subsequent taxable years unless
revoked with the consent of the Secretary.''.
(c) Clerical Amendment.--The table of sections for part IV
of subchapter P of chapter 1 is amended by adding at the end
the following new item:
``Sec. 1259. Constructive sales treatment for appreciated
financial positions.''.
(d) Effective Dates.--
(1) In general.--Except as otherwise provided in
this subsection, the amendments made by this section
shall apply to any constructive sale after June 8,
1997.
(2) Exception for sales of positions, etc. held
before june 9, 1997.--If--
(A) before June 9, 1997, the taxpayer
entered into any transaction which is a
constructive sale of any appreciated financial
position, and
(B) before the close of the 30-day period
beginning on the date of the enactment of this
Act or before such later date as may be
specified by the Secretary of the Treasury,
such transaction and position are clearly
identified in the taxpayer's records as
offsetting,
such transaction and position shall not be taken into
account in determining whether any other constructive
sale after June 8, 1997, has occurred. The preceding
sentence shall cease to apply as of the date such
transaction is closed or the taxpayer ceases to hold
such position.
(3) Special rule.--In the case of a decedent dying
after June 8, 1997, if--
(A) there was a constructive sale on or
before such date of any appreciated financial
position,
(B) the transaction resulting in such
constructive sale of such position remains open
(with respect to the decedent or any related
person)--
(i) for not less than 2 years after
the date of such transaction (whether
such period is before or after June 8,
1997), and
(ii) at any time during the 3-year
period ending on the date of the
decedent's death, and
(C) such transaction is not closed within
the 30-day period beginning on the date of the
enactment of this Act,
then, for purposes of such Code, such position (and the
transaction resulting in such constructive sale) shall
be treated as property constituting rights to receive
an item of income in respect of a decedent under
section 691 of such Code. Section 1014(c) of such Code
shall not apply to so much of such position's or
property's value (as included in the decedent's estate
for purposes of chapter 11 of such Code) as exceeds its
fair market value as of the date such transaction is
closed.
(4) Election of mark to market by securities
traders and traders and dealers in commodities.--
(A) In general.--The amendments made by
subsection (b) shall apply to taxable years
ending after the date of the enactment of this
Act.
(B) 4-year spread of adjustments.--In the
case of a taxpayer who elects under subsection
(e) or (f) of section 475 of the Internal
Revenue Code of 1986 (as added by this section)
to change its method of accounting for the
taxable year which includes the date of the
enactment of this Act--
(i) any identification required
under such subsection with respect to
securities and commodities held on the
date of the enactment of this Act shall
be treated as timely made if made on or
before the 30th day after such date of
enactment, and
(ii) the net amount of the
adjustments required to be taken into
account by the taxpayer under section
481 of such Code shall be taken into
account ratably over the 4-taxable year
period beginning with such first
taxable year.
SEC. 1002. LIMITATION ON EXCEPTION FOR INVESTMENT COMPANIES UNDER
SECTION 351.
(a) In General.--Paragraph (1) of section 351(e) (relating
to exceptions) is amended by adding at the end the following:
``For purposes of the preceding sentence, the determination of
whether a company is an investment company shall be made--
``(A) by taking into account all stock and
securities held by the company, and
``(B) by treating as stock and securities--
``(i) money,
``(ii) stocks and other equity
interests in a corporation, evidences
of indebtedness, options, forward or
futures contracts, notional principal
contracts and derivatives,
``(iii) any foreign currency,
``(iv) any interest in a real
estate investment trust, a common trust
fund, a regulated investment company, a
publicly-traded partnership (as defined
in section 7704(b)) or any other equity
interest (other than in a corporation)
which pursuant to its terms or any
other arrangement is readily
convertible into, or exchangeable for,
any asset described in any preceding
clause, this clause or clause (v) or
(viii),
``(v) except to the extent provided
in regulations prescribed by the
Secretary, any interest in a precious
metal, unless such metal is used or
held in the active conduct of a trade
or business after the contribution,
``(vi) except as otherwise provided
in regulations prescribed by the
Secretary, interests in any entity if
substantially all of the assets of such
entity consist (directly or indirectly)
of any assets described in any
preceding clause or clause (viii),
``(vii) to the extent provided in
regulations prescribed by the
Secretary, any interest in any entity
not described in clause (vi), but only
to the extent of the value of such
interest that is attributable to assets
listed in clauses (i) through (v) or
clause (viii), or
``(viii) any other asset specified
in regulations prescribed by the
Secretary.
The Secretary may prescribe regulations that, under
appropriate circumstances, treat any asset described in
clauses (i) through (v) as not so listed.''.
(b) Effective Date.--
(1) In general.--The amendment made by subsection
(a) shall apply to transfers after June 8, 1997, in
taxable years ending after such date.
(2) Binding contracts.--The amendment made by
subsection (a) shall not apply to any transfer pursuant
to a written binding contract in effect on June 8,
1997, and at all times thereafter before such transfer
if such contract provides for the transfer of a fixed
amount of property.
SEC. 1003. GAINS AND LOSSES FROM CERTAIN TERMINATIONS WITH RESPECT TO
PROPERTY.
(a) Application of Capital Treatment to Property Other Than
Personal Property.--
(1) In general.--Paragraph (1) of section 1234A
(relating to gains and losses from certain
terminations) is amended by striking ``personal
property (as defined in section 1092(d)(1))'' and
inserting ``property''.
(2) Effective date.--The amendment made by
paragraph (1) shall apply to terminations more than 30
days after the date of the enactment of this Act.
(b) Treatment of Short Sales of Property Which Becomes
Substantially Worthless.--
(1) In general.--Section 1233 is amended by adding
at the end the following new subsection:
``(h) Short Sales of Property Which Becomes Substantially
Worthless.--
``(1) In general.--If--
``(A) the taxpayer enters into a short sale
of property, and
``(B) such property becomes substantially
worthless,
the taxpayer shall recognize gain in the same manner as
if the short sale were closed when the property becomes
substantially worthless. To the extent provided in
regulations prescribed by the Secretary, the preceding
sentence also shall apply with respect to any option
with respect to property, any offsetting notional
principal contract with respect to property, any
futures or forward contract to deliver any property,
and any other similar transaction.
``(2) Statute of limitations.--If property becomes
substantially worthless during a taxable year and any
short sale of such property remains open at the time
such property becomes substantially worthless, then--
``(A) the statutory period for the
assessment of any deficiency attributable to
any part of the gain on such transaction shall
not expire before the earlier of--
``(i) the date which is 3 years
after the date the Secretary is
notified by the taxpayer (in such
manner as the Secretary may by
regulations prescribe) of the
substantial worthlessness of such
property, or
``(ii) the date which is 6 years
after the date the return for such
taxable year is filed, and
``(B) such deficiency may be assessed
before the date applicable under subparagraph
(A) notwithstanding the provisions of any other
law or rule of law which would otherwise
prevent such assessment.''.
(2) Effective date.--The amendment made by
paragraph (1) shall apply to property which becomes
substantially worthless after the date of the enactment
of this Act.
(c) Application of Capital Treatment, Etc. to Obligations
Issued by Natural Persons.--
(1) In general.--Section 1271(b) is amended to read
as follows:
``(b) Exception for Certain Obligations.--
``(1) In general.--This section shall not apply
to--
``(A) any obligation issued by a natural
person before June 9, 1997, and
``(B) any obligation issued before July 2,
1982, by an issuer which is not a corporation
and is not a government or political
subdivision thereof.
``(2) Termination.--Paragraph (1) shall not apply
to any obligation purchased (within the meaning of
section 1272(d)(1)) after June 8, 1997.''.
(2) Effective date.--The amendment made by
paragraph (1) shall apply to sales, exchanges, and
retirements after the date of enactment of this Act.
SEC. 1004. DETERMINATION OF ORIGINAL ISSUE DISCOUNT WHERE POOLED DEBT
OBLIGATIONS SUBJECT TO ACCELERATION.
(a) In General.--Subparagraph (C) of section 1272(a)(6)
(relating to debt instruments to which the paragraph applies)
is amended by striking ``or'' at the end of clause (i), by
striking the period at the end of clause (ii) and inserting ``,
or'', and by inserting after clause (ii) the following:
``(iii) any pool of debt
instruments the yield on which may be
affected by reason of prepayments (or
to the extent provided in regulations,
by reason of other events).
To the extent provided in regulations
prescribed by the Secretary, in the case of a
small business engaged in the trade or business
of selling tangible personal property at
retail, clause (iii) shall not apply to debt
instruments incurred in the ordinary course of
such trade or business while held by such
business.''.
(b) Effective Dates.--
(1) In general.--The amendment made by this section
shall apply to taxable years beginning after the date
of the enactment of this Act.
(2) Change in method of accounting.--In the case of
any taxpayer required by this section to change its
method of accounting for its first taxable year
beginning after the date of the enactment of this Act--
(A) such change shall be treated as
initiated by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the
Treasury, and
(C) the net amount of the adjustments
required to be taken into account by the
taxpayer under section 481 of the Internal
Revenue Code of 1986 shall be taken into
account ratably over the 4-taxable year period
beginning with such first taxable year.
SEC. 1005. DENIAL OF INTEREST DEDUCTIONS ON CERTAIN DEBT INSTRUMENTS.
(a) In General.--Section 163 (relating to deduction for
interest), as amended by title V, is amended by redesignating
subsection (l) as subsection (m) and by inserting after
subsection (k) the following new subsection:
``(l) Disallowance of Deduction on Certain Debt Instruments
of Corporations.--
``(1) In general.--No deduction shall be allowed
under this chapter for any interest paid or accrued on
a disqualified debt instrument.
``(2) Disqualified debt instrument.--For purposes
of this subsection, the term `disqualified debt
instrument' means any indebtedness of a corporation
which is payable in equity of the issuer or a related
party.
``(3) Special rules for amounts payable in
equity.--For purposes of paragraph (2), indebtedness
shall be treated as payable in equity of the issuer or
a related party only if--
``(A) a substantial amount of the principal
or interest is required to be paid or
converted, or at the option of the issuer or a
related party is payable in, or convertible
into, such equity,
``(B) a substantial amount of the principal
or interest is required to be determined, or at
the option of the issuer or a related party is
determined, by reference to the value of such
equity, or
``(C) the indebtedness is part of an
arrangement which is reasonably expected to
result in a transaction described in
subparagraph (A) or (B).
For purposes of this paragraph, principal or interest
shall be treated as required to be so paid, converted,
or determined if it may be required at the option of
the holder or a related party and there is a
substantial certainty the option will be exercised.
``(4) Related party.--For purposes of this
subsection, a person is a related party with respect to
another person if such person bears a relationship to
such other person described in section 267(b) or
707(b).
``(5) Regulations.--The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this subsection, including
regulations preventing avoidance of this subsection
through the use of an issuer other than a
corporation.''.
(b) Effective Date.--
(1) In general.--The amendment made by this section
shall apply to disqualified debt instruments issued
after June 8, 1997.
(2) Transition rule.--The amendment made by this
section shall not apply to any instrument issued after
June 8, 1997, if such instrument is--
(A) issued pursuant to a written agreement
which was binding on such date and at all times
thereafter,
(B) described in a ruling request submitted
to the Internal Revenue Service on or before
such date, or
(C) described on or before such date in a
public announcement or in a filing with the
Securities and Exchange Commission required
solely by reason of the issuance.
Subtitle B--Corporate Organizations and Reorganizations
SEC. 1011. TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVIDENDS.
(a) Treatment of Extraordinary Dividends in Excess of
Basis.--Paragraph (2) of section 1059(a) (relating to corporate
shareholder's recognition of gain attributable to nontaxed
portion of extraordinary dividends) is amended to read as
follows:
``(2) Amounts in excess of basis.--If the nontaxed
portion of such dividends exceeds such basis, such
excess shall be treated as gain from the sale or
exchange of such stock for the taxable year in which
the extraordinary dividend is received.''.
(b) Treatment of Redemptions Where Options Involved.--
Paragraph (1) of section 1059(e) (relating to treatment of
partial liquidations and non-pro rata redemptions) is amended
to read as follows:
``(1) Treatment of partial liquidations and certain
redemptions.--Except as otherwise provided in
regulations--
``(A) Redemptions.--In the case of any
redemption of stock--
``(i) which is part of a partial
liquidation (within the meaning of
section 302(e)) of the redeeming
corporation,
``(ii) which is not pro rata as to
all shareholders, or
``(iii) which would not have been
treated (in whole or in part) as a
dividend if any options had not been
taken into account under section
318(a)(4),
any amount treated as a dividend with respect
to such redemption shall be treated as an
extraordinary dividend to which paragraphs (1)
and (2) of subsection (a) apply without regard
to the period the taxpayer held such stock. In
the case of a redemption described in clause
(iii), only the basis in the stock redeemed
shall be taken into account under subsection
(a).
``(B) Reorganizations, etc.--An exchange
described in section 356 which is treated as a
dividend shall be treated as a redemption of
stock for purposes of applying subparagraph
(A).''.
(c) Time for Reduction.--Paragraph (1) of section 1059(d)
is amended to read as follows:
``(1) Time for reduction.--Any reduction in basis
under subsection (a)(1) shall be treated as occurring
at the beginning of the ex-dividend date of the
extraordinary dividend to which the reduction
relates.''.
(d) Effective Dates.--
(1) In general.--The amendments made by this
section shall apply to distributions after May 3, 1995.
(2) Transition rule.--The amendments made by this
section shall not apply to any distribution made
pursuant to the terms of--
(A) a written binding contract in effect on
May 3, 1995, and at all times thereafter before
such distribution, or
(B) a tender offer outstanding on May 3,
1995.
(3) Certain dividends not pursuant to certain
redemptions.--In determining whether the amendment made
by subsection (a) applies to any extraordinary dividend
other than a dividend treated as an extraordinary
dividend under section 1059(e)(1) of the Internal
Revenue Code of 1986 (as amended by this Act),
paragraphs (1) and (2) shall be applied by substituting
``September 13, 1995'' for ``May 3, 1995''.
SEC. 1012. APPLICATION OF SECTION 355 TO DISTRIBUTIONS IN CONNECTION
WITH ACQUISITIONS AND TO INTRAGROUP TRANSACTIONS.
(a) Distributions In Connection With Acquisitions.--Section
355 (relating to distributions of stock and securities of a
controlled corporation) is amended by adding at the end the
following new subsection:
``(e) Recognition of Gain on Certain Distributions of Stock
or Securities in Connection With Acquisitions.--
``(1) General rule.--If there is a distribution to
which this subsection applies, any stock or securities
in the controlled corporation shall not be treated as
qualified property for purposes of subsection (c)(2) of
this section or section 361(c)(2).
``(2) Distributions to which subsection applies.--
``(A) In general.--This subsection shall
apply to any distribution--
``(i) to which this section (or so
much of section 356 as relates to this
section) applies, and
``(ii) which is part of a plan (or
series of related transactions)
pursuant to which 1 or more persons
acquire directly or indirectly stock
representing a 50-percent or greater
interest in the distributing
corporation or any controlled
corporation.
``(B) Plan presumed to exist in certain
cases.--If 1 or more persons acquire directly
or indirectly stock representing a 50-percent
or greater interest in the distributing
corporation or any controlled corporation
during the 4-year period beginning on the date
which is 2 years before the date of the
distribution, such acquisition shall be treated
as pursuant to a plan described in subparagraph
(A)(ii) unless it is established that the
distribution and theacquisition are not
pursuant to a plan or series of related transactions.
``(C) Certain plans disregarded.--A plan
(or series of related transactions) shall not
be treated as described in subparagraph (A)(ii)
if, immediately after the completion of such
plan or transactions, the distributing
corporation and all controlled corporations are
members of a single affiliated group (as
defined in section 1504 without regard to
subsection (b) thereof).
``(D) Coordination with subsection (d).--
This subsection shall not apply to any
distribution to which subsection (d) applies.
``(3) Special rules relating to acquisitions.--
``(A) Certain acquisitions not taken into
account.--Except as provided in regulations,
the following acquisitions shall not be treated
as described in paragraph (2)(A)(ii):
``(i) The acquisition of stock in
any controlled corporation by the
distributing corporation.
``(ii) The acquisition by a person
of stock in any controlled corporation
by reason of holding stock or
securities in the distributing
corporation.
``(iii) The acquisition by a person
of stock in any successor corporation
of the distributing corporation or any
controlled corporation by reason of
holding stock or securities in such
distributing or controlled corporation.
``(iv) The acquisition of stock in
a corporation if shareholders owning
directly or indirectly stock
possessing--
``(I) more than 50 percent
of the total combined voting
power of all classes of stock
entitled to vote, and
``(II) more than 50 percent
of the total value of shares of
all classes of stock,
in the distributing corporation or any
controlled corporation before such
acquisition own directly or indirectly
stock possessing such vote and value in
such distributing or controlled
corporation after such acquisition.
This subparagraph shall not apply to any
acquisition if the stock held before the
acquisition was acquired pursuant to a plan (or
series of related transactions) described in
paragraph (2)(A)(ii).
``(B) Asset acquisitions.--Except as
provided in regulations, for purposes of this
subsection, if the assets of the distributing
corporation or any controlled corporation are
acquired by a successor corporation in a
transaction described in subparagraph (A), (C),
or (D) of section 368(a)(1) or any other
transaction specified in regulations by the
Secretary, the shareholders (immediately before
the acquisition) of the corporation acquiring
such assets shall be treated as acquiring stock
in the corporation from which the assets were
acquired.
``(4) Definition and special rules.--For purposes
of this subsection--
``(A) 50-percent or greater interest.--The
term `50-percent or greater interest' has the
meaning given such term by subsection (d)(4).
``(B) Distributions in title 11 or similar
case.--Paragraph (1) shall not apply to any
distribution made in a title 11 or similar case
(as defined in section 368(a)(3)).
``(C) Aggregation and attribution rules.--
``(i) Aggregation.--The rules of
paragraph (7)(A) of subsection (d)
shall apply.
``(ii) Attribution.--Section
318(a)(2) shall apply in determining
whether a person holds stock or
securities in any corporation. Except
as provided in regulations, section
318(a)(2)(C) shall be applied without
regard to the phrase `50 percent or
more in value' for purposes of the
preceding sentence.
``(D) Successors and predecessors.--For
purposes of this subsection, any reference to a
controlled corporation or a distributing
corporation shall include a reference to any
predecessor or successor of such corporation.
``(E) Statute of limitations.--If there is
a distribution to which paragraph (1) applies--
``(i) the statutory period for the
assessment of any deficiency
attributable to any part of the gain
recognized under this subsection by
reason of such distribution shall not
expire before the expiration of 3 years
from the date the Secretary is notified
by the taxpayer (in such manner as the
Secretary may by regulations prescribe)
that such distribution occurred, and
``(ii) such deficiency may be
assessed before the expiration of such
3-year period notwithstanding the
provisions of any other law or rule of
law which would otherwise prevent such
assessment.
``(5) Regulations.--The Secretary shall prescribe
such regulations as may be necessary to carry out the
purposes of this subsection, including regulations--
``(A) providing for the application of this
subsection where there is more than 1
controlled corporation,
``(B) treating 2 or more distributions as 1
distribution where necessary to prevent the
avoidance of such purposes, and
``(C) providing for the application of
rules similar to the rules of subsection (d)(6)
where appropriate for purposes of paragraph
(2)(B).''.
(b) Special Rules for Certain Intragroup Transactions.--
(1) Section 355 not to apply.--Section 355, as
amended by subsection (a), is amended by adding at the
end the following new subsection:
``(f) Section Not To Apply to Certain Intragroup
Distributions.--Except as provided in regulations, this section
(or so much of section 356 as relates to this section) shall
not apply to the distribution of stock from 1 member of an
affiliated group (as defined in section 1504(a)) to another
member of such group if such distribution is part of a plan (or
series of related transactions) described in subsection
(e)(2)(A)(ii) (determined after the application of subsection
(e)).''.
(2) Adjustments to basis.--Section 358 (relating to
basis to distributees) is amended by adding at the end
the following new subsection:
``(g) Adjustments in Intragroup Transactions Involving
Section 355.--In the case of a distribution to which section
355 (or so much of section 356 as relates to section 355)
applies and which involves the distribution of stock from 1
member of an affiliated group (as defined in section 1504(a)
without regard to subsection (b) thereof) to another member of
such group, the Secretary may, notwithstanding any other
provision of this section, provide adjustments to the adjusted
basis of any stock which--
``(1) is in a corporation which is a member of such
group, and
``(2) is held by another member of such group,
to appropriately reflect the proper treatment of such
distribution.''.
(c) Determination of Control in Certain Divisive
Transactions.--
(1) Section 351 transactions.--Section 351(c)
(relating to special rule) is amended to read as
follows:
``(c) Special Rules Where Distribution to Shareholders.--In
determining control for purposes of this section--
``(1) the fact that any corporate transferor
distributes part or all of the stock in the corporation
which it receives in the exchange to its shareholders
shall not be taken into account, and
``(2) if the requirements of section 355 are met
with respect to such distribution, the shareholders
shall be treated as in control of such corporation
immediately after the exchange if the shareholders own
(immediately after the distribution) stock possessing--
``(A) more than 50 percent of the total
combined voting power of all classes of stock
of such corporation entitled to vote, and
``(B) more than 50 percent of the total
value of shares of all classes of stock of such
corporation.''.
(2) D reorganizations.--Section 368(a)(2)(H)
(relating to special rule for determining whether
certain transactions are qualified under paragraph
(1)(D)) is amended to read as follows:
``(H) Special rules for determining whether
certain transactions are qualified under
paragraph (1)(d).--For purposes of determining
whether a transaction qualifies under paragraph
(1)(D)--
``(i) in the case of a transaction
with respect to which the requirements
of subparagraphs (A) and (B) of section
354(b)(1) are met, the term `control'
has the meaning given such term by
section 304(c), and
``(ii) in the case of a transaction
with respect to which the requirements
of section 355 are met, the
shareholders described in paragraph
(1)(D) shall be treated as having
control of the corporation to which the
assets are transferred if such
shareholders own (immediately after the
distribution) stock possessing--
``(I) more than 50 percent
of the total combined voting
power of all classes of stock
of such corporation entitled to
vote, and
``(II) more than 50 percent
of the total value of shares of
all classes of stock of such
corporation.''.
(d) Effective Dates.--
(1) Section 355 rules.--The amendments made by
subsections (a) and (b) shall apply to distributions
after April 16, 1997, pursuant to a plan (or series of
related transactions) which involves an acquisition
described in section 355(e)(2)(A)(ii) of the Internal
Revenue Code of 1986 occurring after such date.
(2) Divisive transactions.--The amendments made by
subsection (c) shall apply to transfers after the date
of the enactment of this Act.
(3) Transition rule.--The amendments made by this
section shall not apply to any distribution pursuant to
a plan (or series of related transactions)which
involves an acquisition described in section 355(e)(2)(A)(ii) of the
Internal Revenue Code of 1986 (or, in the case of the amendments made
by subsection (c), any transfer) occurring after April 16, 1997, if
such acquisition or transfer is--
(A) made pursuant to an agreement which was
binding on such date and at all times
thereafter,
(B) described in a ruling request submitted
to the Internal Revenue Service on or before
such date, or
(C) described on or before such date in a
public announcement or in a filing with the
Securities and Exchange Commission required
solely by reason of the acquisition or
transfer.
This paragraph shall not apply to any agreement, ruling
request, or public announcement or filing unless it
identifies the acquirer of the distributing corporation
or any controlled corporation, or the transferee,
whichever is applicable.
SEC. 1013. TAX TREATMENT OF REDEMPTIONS INVOLVING RELATED CORPORATIONS.
(a) Stock Purchases by Related Corporations.--The last
sentence of section 304(a)(1) (relating to acquisition by
related corporation other than subsidiary) is amended to read
as follows: ``To the extent that such distribution is treated
as a distribution to which section 301 applies, the transferor
and the acquiring corporation shall be treated in the same
manner as if the transferor had transferred the stock so
acquired to the acquiring corporation in exchange for stock of
the acquiring corporation in a transaction to which section
351(a) applies, and then the acquiring corporation had redeemed
the stock it was treated as issuing in such transaction.''.
(b) Coordination With Section 1059.--Clause (iii) of
section 1059(e)(1)(A), as amended by this title, is amended to
read as follows:
``(iii) which would not have been
treated (in whole or in part) as a
dividend if--
``(I) any options had not
been taken into account under
section 318(a)(4), or
``(II) section 304(a) had
not applied,''.
(c) Special Rule for Acquisitions by Foreign
Corporations.--Section 304(b) (relating to special rules for
application of subsection (a)) is amended by adding at the end
the following new paragraph:
``(5) Acquisitions by foreign corporations.--
``(A) In general.--In the case of any
acquisition to which subsection (a) applies in
which the acquiring corporation is a foreign
corporation, the only earnings and profits
taken into account under paragraph (2)(A) shall
be those earnings and profits--
``(i) which are attributable (under
regulations prescribed by the
Secretary) to stock of the acquiring
corporation owned (within the meaning
of section 958(a)) by a corporation or
individual which is--
``(I) a United States
shareholder (within the meaning
of section 951(b)) of the
acquiring corporation, and
``(II) the transferor or a
person who bears a relationship
to the transferor described in
section 267(b) or 707(b), and
``(ii) which were accumulated
during the period or periods such stock
was owned by such person while the
acquiring corporation was a controlled
foreign corporation.
``(B) Application of section 1248.--For
purposes of subparagraph (A), the rules of
section 1248(d) shall apply except to the
extent otherwise provided by the Secretary.
``(C) Regulations.--The Secretary shall
prescribe such regulations as are appropriate
to carry out the purposes of this paragraph.''.
(d) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to distributions and acquisitions
after June 8, 1997.
(2) Transition rule.--The amendments made by this
section shall not apply to any distribution or
acquisition after June 8, 1997, if such distribution or
acquisition is--
(A) made pursuant to a written agreement
which was binding on such date and at all times
thereafter,
(B) described in a ruling request submitted
to the Internal Revenue Service on or before
such date, or
(C) described in a public announcement or
filing with the Securities and Exchange
Commission on or before such date.
SEC. 1014. CERTAIN PREFERRED STOCK TREATED AS BOOT.
(a) Section 351.--Section 351 (relating to transfer to
corporation controlled by transferor) is amended by
redesignating subsection (g) as subsection (h) and by inserting
after subsection (f) the following new subsection:
``(g) Nonqualified Preferred Stock Not Treated as Stock.--
``(1) In general.--In the case of a person who
transfers property to a corporation and receives
nonqualified preferred stock--
``(A) subsection (a) shall not apply to
such transferor,
``(B) subsection (b) shall apply to such
transferor, and
``(C) such nonqualified preferred stock
shall be treated as other property for purposes
of applying subsection (b).
``(2) Nonqualified preferred stock.--For purposes
of paragraph (1)--
``(A) In general.--The term `nonqualified
preferred stock' means preferred stock if--
``(i) the holder of such stock has
the right to require the issuer or a
related person to redeem or purchase
the stock,
``(ii) the issuer or a related
person is required to redeem or
purchase such stock,
``(iii) the issuer or a related
person has the right to redeem or
purchase the stock and, as of the issue
date, it is more likely than not that
such right will be exercised, or
``(iv) the dividend rate on such
stock varies in whole or in part
(directly or indirectly) with reference
to interest rates, commodity prices, or
other similar indices.
``(B) Limitations.--Clauses (i), (ii), and
(iii) of subparagraph (A) shall apply only if
the right or obligation referred to therein may
be exercised within the 20-year period
beginning on the issue date of such stock and
such right or obligation is not subject to a
contingency which, as of the issue date, makes
remote the likelihood of the redemption or
purchase.
``(C) Exceptions for certain rights or
obligations.--
``(i) In general.--A right or
obligation shall not be treated as
described in clause (i), (ii), or (iii)
of subparagraph (A) if--
``(I) it may be exercised
only upon the death,
disability, or mental
incompetency of the holder, or
``(II) in the case of a
right or obligation to redeem
or purchase stock transferred
in connection with the
performance of services for the
issuer or a related person (and
which represents reasonable
compensation), it may be
exercised only upon the
holder's separation from
service from the issuer or a
related person.
``(ii) Exception.--Clause (i)(I)
shall not apply if the stock
relinquished in the exchange, or the
stock acquired in the exchange is in--
``(I) a corporation if any
class of stock in such
corporation or a related party
is readily tradable on an
established securities market
or otherwise, or
``(II) any other
corporation if such exchange is
part of a transaction or series
of transactions in which such
corporation is to become a
corporation described in
subclause (I).
``(3) Definitions.--For purposes of this
subsection--
``(A) Preferred stock.--The term `preferred
stock' means stock which is limited and
preferred as to dividends and does not
participate in corporate growth to any
significant extent.
``(B) Related person.--A person shall be
treated as related to another person if they
bear a relationship to such other person
described in section 267(b) or 707(b).
``(4) Regulations.--The Secretary may prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this subsection and sections
354(a)(2)(C), 355(a)(3)(D), and 356(e). The Secretary
may also prescribe regulations, consistent with the
treatment under this subsection and such sections, for
the treatment of nonqualified preferred stock under
other provisions of this title.''.
(b) Section 354.--Paragraph (2) of section 354(a) (relating
to exchanges of stock and securities in certain
reorganizations) is amended by adding at the end the following
new subparagraph:
``(C) Nonqualified preferred stock.--
``(i) In general.--Nonqualified
preferred stock (as defined in section
351(g)(2)) received in exchange for
stock other than nonqualified preferred
stock (as so defined) shall not be
treated as stock or securities.
``(ii) Recapitalizations of family-
owned corporations.--
``(I) In general.--Clause
(i) shall not apply in the case
of a recapitalization under
section 368(a)(1)(E) of a
family-owned corporation.
``(II) Family-owned
corporation.--For purposes of
this clause, except as provided
in regulations, the term
`family-owned corporation'
means any corporation which is
described in clause (i) of
section 447(d)(2)(C) throughout
the 8-year period beginning on
the date which is 5 years
before the date of the
recapitalization. For purposes
of the preceding sentence,
stock shall not be treated as
owned by a family member during
any period described in section
355(d)(6)(B).''.
(c) Section 355.--Paragraph (3) of section 355(a) is
amended by adding at the end the following new subparagraph:
``(D) Nonqualified preferred stock.--
Nonqualified preferred stock (as defined in
section 351(g)(2)) received in a distribution
with respect to stock other than nonqualified
preferred stock (as so defined) shall not be
treated as stock or securities.''.
(d) Section 356.--Section 356 is amended by redesignating
subsections (e) and (f) as subsections (f) and (g),
respectively, and by inserting after subsection (d) the
following new subsection:
``(e) Nonqualified Preferred Stock Treated as Other
Property.--For purposes of this section--
``(1) In general.--Except as provided in paragraph
(2), the term `other property' includes
nonqualifiedpreferred stock (as defined in section 351(g)(2)).
``(2) Exception.--The term `other property' does
not include nonqualified preferred stock (as so
defined) to the extent that, under section 354 or 355,
such preferred stock would be permitted to be received
without the recognition of gain.''.
(e) Conforming Amendments.--
(1) Subparagraph (B) of section 354(a)(2) and
subparagraph (C) of section 355(a)(3)(C) are each
amended by inserting ``(including nonqualified
preferred stock, as defined in section 351(g)(2))''
after ``stock''.
(2) Subparagraph (A) of section 354(a)(3) and
subparagraph (A) of section 355(a)(4) are each amended
by inserting ``nonqualified preferred stock and'' after
``including''.
(3) Section 1036 is amended by redesignating
subsection (b) as subsection (c) and by inserting after
subsection (a) the following new subsection:
``(b) Nonqualified Preferred Stock Not Treated as Stock.--
For purposes of this section, nonqualified preferred stock (as
defined in section 351(g)(2)) shall be treated as property
other than stock.''.
(f) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to transactions after June 8, 1997.
(2) Transition rule.--The amendments made by this
section shall not apply to any transaction after June
8, 1997, if such transaction is--
(A) made pursuant to a written agreement
which was binding on such date and at all times
thereafter,
(B) described in a ruling request submitted
to the Internal Revenue Service on or before
such date, or
(C) described on or before such date in a
public announcement or in a filing with the
Securities and Exchange Commission required
solely by reason of the transaction.
SEC. 1015. MODIFICATION OF HOLDING PERIOD APPLICABLE TO DIVIDENDS
RECEIVED DEDUCTION.
(a) In General.--Subparagraph (A) of section 246(c)(1) is
amended to read as follows:
``(A) which is held by the taxpayer for 45
days or less during the 90-day period beginning
on the date which is 45 days before the date on
which such share becomes ex-dividend with
respect to such dividend, or''.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 246(c) is amended to
read as follows:
``(2) 90-day rule in the case of certain preference
dividends.--In the case of stock having preference in
dividends, if the taxpayer receives dividends with
respect to such stock which are attributable to a
period or periods aggregating in excess of 366 days,
paragraph (1)(A) shall be applied--
``(A) by substituting `90 days' for `45
days' each place it appears, and
``(B) by substituting `180-day period' for
`90-day period'.''.
(2) Paragraph (3) of section 246(c) is amended by
adding ``and'' at the end of subparagraph (A), by
striking subparagraph (B), and by redesignating
subparagraph (C) as subparagraph (B).
(c) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to dividends received or accrued
after the 30th day after the date of the enactment of
this Act.
(2) Transitional rule.--The amendments made by this
section shall not apply to dividends received or
accrued during the 2-year period beginning on the date
of the enactment of this Act if--
(A) the dividend is paid with respect to
stock held by the taxpayer on June 8, 1997, and
all times thereafter until the dividend is
received,
(B) such stock is continuously subject to a
position described in section 246(c)(4) of the
Internal Revenue Code of 1986 on June 8, 1997,
and all times thereafter until the dividend is
received, and
(C) such stock and position are clearly
identified in the taxpayer's records within 30
days after the date of the enactment of this
Act.
Stock shall not be treated as meeting the requirement
of subparagraph (B) if the position is sold, closed, or
otherwise terminated and reestablished.
Subtitle C--Administrative Provisions
SEC. 1021. REPORTING OF CERTAIN PAYMENTS MADE TO ATTORNEYS.
(a) In General.--Section 6045 (relating to returns of
brokers) is amended by adding at the end the following new
subsection:
``(f) Return Required in the Case of Payments to
Attorneys.--
``(1) In general.--Any person engaged in a trade or
business and making a payment (in the course of such
trade or business) to which this subsection applies
shall file a return under subsection (a) and a
statement under subsection (b) with respect to such
payment.
``(2) Application of subsection.--
``(A) In general.--This subsection shall
apply to any payment to an attorney in
connection with legal services (whether or not
such services are performed for the payor).
``(B) Exception.--This subsection shall not
apply to the portion of any payment which is
required to be reported under section 6041(a)
(or would be so required but for the dollar
limitation contained therein) or section
6051.''.
(b) Reporting of Attorneys' Fees Payable to Corporations.--
The regulations providing an exception under section 6041 of
the Internal Revenue Code of 1986 for payments made to
corporations shall not apply to payments of attorneys' fees.
(c) Effective Date.--The amendment made by this section
shall apply to payments made after December 31, 1997.
SEC. 1022. DECREASE OF THRESHOLD FOR REPORTING PAYMENTS TO CORPORATIONS
PERFORMING SERVICES FOR FEDERAL AGENCIES.
(a) In General.--Subsection (d) of section 6041A (relating
to returns regarding payments of remuneration for services and
direct sales) is amended by adding at the end the following new
paragraph:
``(3) Payments to corporations by federal executive
agencies.--
``(A) In general.--Notwithstanding any
regulation prescribed by the Secretary before
the date of the enactment of this paragraph,
subsection (a) shall apply to remuneration paid
to a corporation by any Federal executive
agency (as defined in section 6050M(b)).
``(B) Exception.--Subparagraph (A) shall
not apply to--
``(i) services under contracts
described in section 6050M(e)(3) with
respect to which the requirements of
section 6050M(e)(2) are met, and
``(ii) such other services as the
Secretary may specify in regulations
prescribed after the date of the
enactment of this paragraph.''.
(b) Effective Date.--The amendment made by this section
shall apply to returns the due date for which (determined
without regard to any extension) is more than 90 days after the
date of the enactment of this Act.
SEC. 1023. DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF
CERTAIN VETERANS PROGRAMS.
(a) General Rule.--Clause (viii) of section 6103(l)(7)(D)
(relating to disclosure of return information to Federal,
State, and local agencies administering certain programs) is
amended by striking ``1998'' and inserting ``2003''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on the date of the enactment of this Act.
SEC. 1024. CONTINUOUS LEVY ON CERTAIN PAYMENTS.
(a) In General.--Section 6331 (relating to levy and
distraint) is amended--
(1) by redesignating subsection (h) as subsection
(i), and
(2) by inserting after subsection (g) the following
new subsection:
``(h) Continuing Levy on Certain Payments.--
``(1) In general.--The effect of a levy on
specified payments to or received by a taxpayer shall
be continuous from the date such levy is first made
until such levy is released. Notwithstanding section
6334, such continuous levy shall attach to up to 15
percent of any specified payment due to the taxpayer.
``(2) Specified payment.--For the purposes of
paragraph (1), the term `specified payment' means--
``(A) any Federal payment other than a
payment for which eligibility is based on the
income or assets (or both) of a payee,
``(B) any payment described in paragraph
(4), (7), (9), or (11) of section 6334(a), and
``(C) any annuity or pension payment under
the Railroad Retirement Act or benefit under
the Railroad Unemployment Insurance Act.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to levies issued after the date of the enactment of
this Act.
SEC. 1025. MODIFICATION OF LEVY EXEMPTION.
(a) In General.--Section 6334 (relating to property exempt
from levy) is amended by redesignating subsection (f) as
subsection (g) and by inserting after subsection (e) the
following new subsection:
``(f) Levy Allowed on Certain Specified Payments.--Any
payment described in subparagraph (B) or (C) of section
6331(h)(2) shall not be exempt from levy if the Secretary
approves the levy thereon under section 6331(h).''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to levies issued after the date of the enactment of
this Act.
SEC. 1026. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN
INFORMATION.
(a) In General.--Subsection (k) of section 6103 is amended
by adding at the end the following new paragraph:
``(8) Levies on certain government payments.--
``(A) Disclosure of return information in
levies on financial management service.--In
serving a notice of levy, or release of such
levy, with respect to any applicable government
payment, the Secretary may disclose to officers
and employees of the Financial Management
Service--
``(i) return information, including
taxpayer identity information,
``(ii) the amount of any unpaid
liability under this title (including
penalties and interest), and
``(iii) the type of tax and tax
period to which such unpaid liability
relates.
``(B) Restriction on use of disclosed
information.--Return information disclosed
under subparagraph (A) may be used by officers
and employees of the Financial Management
Service only for the purpose of, and to the
extent necessary in, transferring levied funds
in satisfaction of the levy, maintaining
appropriate agency records in regard to such
levy or the release thereof, notifying the
taxpayer and the agency certifying such payment
that the levy has been honored, or in the
defense of any litigation ensuing from the
honor of such levy.
``(C) Applicable government payment.--For
purposes of this paragraph, the term
`applicable government payment' means--
``(i) any Federal payment (other
than a payment for which eligibility is
based on the income or assets (or both)
of a payee) certified to the Financial
Management Service for disbursement,
and
``(ii) any other payment which is
certified to the Financial Management
Service for disbursement and which the
Secretary designates by published
notice.''.
(b) Conforming Amendments.--
(1) Section 6103(p) is amended--
(A) in paragraph (3)(A), by striking ``(2),
or (6)'' and inserting ``(2), (6), or (8)'',
and
(B) in paragraph (4), by inserting
``(k)(8),'' after ``(j) (1) or (2),'' each
place it appears.
(2) Section 552a(a)(8)(B) of title 5, United States
Code, is amended by striking ``or'' at the end of
clause (v), by adding ``or'' at the end of clause (vi),
and by adding at the end the following new clause:
``(vii) matches performed incident
to a levy described in section
6103(k)(8) of the Internal Revenue Code
of 1986;''.
(c) Effective Date.--The amendments made by this section
shall apply to levies issued after the date of the enactment of
this Act.
SEC. 1027. RETURNS OF BENEFICIARIES OF ESTATES AND TRUSTS REQUIRED TO
FILE RETURNS CONSISTENT WITH ESTATE OR TRUST RETURN
OR TO NOTIFY SECRETARY OF INCONSISTENCY.
(a) Domestic Estates and Trusts.--Section 6034A (relating
to information to beneficiaries of estates and trusts) is
amended by adding at the end the following new subsection:
``(c) Beneficiary's Return Must be Consistent with Estate
or Trust Return or Secretary Notified of Inconsistency.--
``(1) In general.--A beneficiary of any estate or
trust to which subsection (a) applies shall, on such
beneficiary's return, treat any reported item in a
manner which is consistent with the treatment of such
item on the applicable entity's return.
``(2) Notification of inconsistent treatment.--
``(A) In general.--In the case of any
reported item, if--
``(i)(I) the applicable entity has
filed a return but the beneficiary's
treatment on such beneficiary's return
is (or may be) inconsistent with the
treatment of the item on the applicable
entity's return, or
``(II) the applicable entity has
not filed a return, and
``(ii) the beneficiary files with
the Secretary a statement identifying
the inconsistency,
paragraph (1) shall not apply to such item.
``(B) Beneficiary receiving incorrect
information.--A beneficiary shall be treated as
having complied with clause (ii) of
subparagraph (A) with respect to a reported
item if the beneficiary--
``(i) demonstrates to the
satisfaction of the Secretary that the
treatment of the reported item on the
beneficiary's return is consistent with
the treatment of the item on the
statement furnished under subsection
(a) to the beneficiary by the
applicable entity, and
``(ii) elects to have this
paragraph apply with respect to that
item.
``(3) Effect of failure to notify.--In any case--
``(A) described in subparagraph (A)(i)(I)
of paragraph (2), and
``(B) in which the beneficiary does not
comply with subparagraph (A)(ii) of paragraph
(2),
any adjustment required to make the treatment of the
items by such beneficiary consistent with the treatment
of the items on the applicable entity's return shall be
treated as arising out of mathematical or clerical
errors and assessed according to section 6213(b)(1).
Paragraph (2) of section 6213(b) shall not apply to any
assessment referred to in the preceding sentence.
``(4) Definitions.--For purposes of this
subsection--
``(A) Reported item.--The term `reported
item' means any item for which information is
required to be furnished under subsection (a).
``(B) Applicable entity.--The term
`applicable entity' means the estate or trust
of which the taxpayer is the beneficiary.
``(5) Addition to tax for failure to comply with
section.--For addition to tax in the case of a
beneficiary's negligence in connection with, or
disregard of, the requirements of this section, see
part II of subchapter A of chapter 68.''.
(b) Foreign Trusts.--Subsection (d) of section 6048
(relating to information with respect to certain foreign
trusts) is amended by adding at the end the following new
paragraph:
``(5) United states person's return must be
consistent with trust return or secretary notified of
inconsistency.--Rules similar to the rules of section
6034A(c) shall apply to items reported by a trust under
subsection (b)(1)(B) and to United States persons
referred to in such subsection.''.
(c) Effective Date.--The amendments made by this section
shall apply to returns of beneficiaries and owners filed after
the date of the enactment of this Act.
SEC. 1028. REGISTRATION AND OTHER PROVISIONS RELATING TO CONFIDENTIAL
CORPORATE TAX SHELTERS.
(a) In General.--Section 6111 (relating to registration of
tax shelters) is amended by redesignating subsections (d) and
(e) as subsections (e) and (f), respectively, and by inserting
after subsection (c) the following new subsection:
``(d) Certain Confidential Arrangements Treated as Tax
Shelters.--
``(1) In general.--For purposes of this section,
the term `tax shelter' includes any entity, plan,
arrangement, or transaction--
``(A) a significant purpose of the
structure of which is the avoidance or evasion
of Federal income tax for a direct or indirect
participant which is a corporation,
``(B) which is offered to any potential
participant under conditions of
confidentiality, and
``(C) for which the tax shelter promoters
may receive fees in excess of $100,000 in the
aggregate.
``(2) Conditions of confidentiality.--For purposes
of paragraph (1)(B), an offer is under conditions of
confidentiality if--
``(A) the potential participant to whom the
offer is made (or any other person acting on
behalf of such participant) has an
understanding or agreement with or for the
benefit of any promoter of the tax shelter that
such participant (or such other person) will
limit disclosure of the tax shelter or any
significant tax features of the tax shelter, or
``(B) any promoter of the tax shelter--
``(i) claims, knows, or has reason
to know,
``(ii) knows or has reason to know
that any other person (other than the
potential participant) claims, or
``(iii) causes another person to
claim,
that the tax shelter (or any aspect thereof) is
proprietary to any person other than the
potential participant or is otherwise protected
from disclosure to or use by others.
For purposes of this subsection, the term `promoter'
means any person or any related person (within the
meaning of section 267 or 707) who participates in the
organization, management, or sale of the tax shelter.
``(3) Persons other than promoter required to
register in certain cases.--
``(A) In general.--If--
``(i) the requirements of
subsection (a) are not met with respect
to any tax shelter (as defined in
paragraph (1)) by any tax shelter
promoter, and
``(ii) no tax shelter promoter is a
United States person,
then each United States person who discussed
participation in such shelter shall register
such shelter under subsection (a).
``(B) Exception.--Subparagraph (A) shall
not apply to a United States person who
discussed participation in a tax shelter if--
``(i) such person notified the
promoter in writing (not later than the
close of the 90th day after the day on
which such discussions began) that such
person would not participate in such
shelter, and
``(ii) such person does not
participate in such shelter.
``(4) Offer to participate treated as offer for
sale.--For purposes of subsections (a) and (b), an
offer to participate in a tax shelter (as defined in
paragraph (1)) shall be treated as an offer for
sale.''.
(b) Penalty.--Subsection (a) of section 6707 (relating to
failure to furnish information regarding tax shelters) is
amended by adding at the end the following new paragraph:
``(3) Confidential arrangements.--
``(A) In general.--In the case of a tax
shelter (as defined in section 6111(d)), the
penalty imposed under paragraph (1) shall be an
amount equal to the greater of--
``(i) 50 percent of the fees paid
to all promoters of the tax shelter
with respect to offerings made before
the date such shelter is registered
under section 6111, or
``(ii) $10,000.
Clause (i) shall be applied by substituting `75
percent' for `50 percent' in the case of an
intentional failure or act described in
paragraph (1).
``(B) Special rule for participants
required to register shelter.--In the case of a
person required to register such a tax shelter
by reason of section 6111(d)(3)--
``(i) such person shall be required
to pay the penalty under paragraph (1)
only if such person actually
participated in such shelter,
``(ii) the amount of such penalty
shall be determined by taking into
account under subparagraph (A)(i) only
the fees paid by such person, and
``(iii) such penalty shall be in
addition to the penalty imposed on any
other person for failing to register
such shelter.''.
(c) Modifications to Substantial Understatement Penalty.--
(1) Restriction on reasonable basis for corporate
understatement of income tax.--Subparagraph (B) of
section 6662(d)(2) is amended by adding at the end the
following new flush sentence:
``For purposes of clause (ii)(II), in no event
shall a corporation be treated as having a
reasonable basis for its tax treatment of an
item attributable to a multiple-party financing
transaction if such treatment does not clearly
reflect the income of the corporation.''.
(2) Modification to definition of tax shelter.--
Clause (iii) of section 6662(d)(2)(C) is amended by
striking ``the principal purpose'' and inserting ``a
significant purpose''.
(d) Conforming Amendments.--
(1) Paragraph (2) of section 6707(a) is amended by
striking ``The penalty'' and inserting ``Except as
provided in paragraph (3), the penalty''.
(2) Subparagraph (A) of section 6707(a)(1) is
amended by striking ``paragraph (2)'' and inserting
``paragraph (2) or (3), as the case may be''.
(e) Effective Date.--
(1) In general.--Except as provided in paragraph
(2), the amendments made by this section shall apply to
any tax shelter (as defined in section 6111(d) of the
Internal Revenue Code of 1986, as amended by this
section) interests in which are offered to potential
participants after the Secretary of the Treasury
prescribes guidance with respect to meeting
requirements added by such amendments.
(2) Modifications to substantial understatement
penalty.--The amendments made by subsection (c) shall
apply to items with respect to transactions entered
into after the date of the enactment of this Act.
Subtitle D--Excise and Employment Tax Provisions
SEC. 1031. EXTENSION AND MODIFICATION OF TAXES FUNDING AIRPORT AND
AIRWAY TRUST FUND; INCREASED DEPOSITS INTO SUCH
FUND.
(a) Fuel Taxes.--
(1) Aviation fuel.--Clause (ii) of section
4091(b)(3)(A) is amended by striking ``September 30,
1997'' and inserting ``September 30, 2007''.
(2) Aviation gasoline.--Subparagraph (B) of section
4081(d)(2) is amended by striking ``September 30,
1997'' and inserting ``September 30, 2007''.
(3) Noncommercial aviation.--Subparagraph (B) of
section 4041(c)(3) is amended by striking ``September
30, 1997'' and inserting ``September 30, 2007''.
(b) Ticket Taxes.--
(1) Persons.--Clause (ii) of section 4261(g)(1)(A)
is amended by striking ``September 30, 1997'' and
inserting ``September 30, 2007''.
(2) Property.--Clause (ii) of section 4271(d)(1)(A)
is amended by striking ``September 30, 1997'' and
inserting ``September 30, 2007''.
(c) Modifications to Tax on Transportation of Persons by
Air.--
(1) In general.--Section 4261 (relating to
imposition of tax) is amended by striking subsections
(a), (b), and (c) and inserting the following new
subsections:
``(a) In General.--There is hereby imposed on the amount
paid for taxable transportation of any person a tax equal to
7.5 percent of the amount so paid.
``(b) Domestic Segments of Taxable Transportation.--
``(1) In general.--There is hereby imposed on the
amount paid for each domestic segment of taxable
transportation by air a tax in the amount determined in
accordance with the following table for the period in
which the segment begins:
In the case of segments
beginning:
The tax is:
After September 30, 1997, and before October 1, 1998.. $1.00
After September 30, 1998, and before October 1, 1999.. $2.00
After September 30, 1999, and before January 1, 2000.. $2.25
During 2000........................................... $2.50
During 2001........................................... $2.75
During 2002 or thereafter............................. $3.00.
``(2) Domestic segment.--For purposes of this
section, the term `domestic segment' means any segment
consisting of 1 takeoff and 1 landing and which is
taxable transportation described in section 4262(a)(1).
``(3) Changes in segments by reason of rerouting.--
If--
``(A) transportation is purchased between 2
locations on specified flights, and
``(B) there is a change in the route taken
between such 2 locations which changes the
number of domestic segments, but there is no
change in the amount charged for such
transportation,
the tax imposed by paragraph (1) shall be determined
without regard to such change in route.
``(c) Use of International Travel Facilities.--
``(1) In general.--There is hereby imposed a tax of
$12.00 on any amount paid (whether within or without
the United States) for any transportation of any person
by air, if such transportation begins or ends in the
United States.
``(2) Exception for transportation entirely taxable
under subsection (a).--This subsection shall not apply
to any transportation all of which is taxable under
subsection (a) (determined without regard to sections
4281 and 4282).
``(3) Special rule for alaska and hawaii.--In any
case in which the tax imposed by paragraph (1) applies
to a domestic segment beginning or ending in Alaska or
Hawaii, such tax shall apply only to departures and
shall be at the rate of $6.''.
(2) Special rules.--Section 4261 is amended by
redesignating subsections (e), (f), and (g) as
subsections (f), (g), and (h), respectively, and by
inserting after subsection (d) the following new
subsection:
``(e) Special Rules.--
``(1) Segments to and from rural airports.--
``(A) Exception from segment tax.--The tax
imposed by subsection (b)(1) shall not apply to
any domestic segment beginning or ending at an
airport which is a rural airport for the
calendar year in which such segment begins or
ends (as the case may be).
``(B) Rural airport.--For purposes of this
paragraph, the term `rural airport' means, with
respect to any calendar year, any airport if--
``(i) there were fewer than 100,000
commercial passengers departing by air
during the second preceding calendar
year from such airport, and
``(ii) such airport--
``(I) is not located within
75 miles of another airport
which is not described in
clause (i), or
``(II) is receiving
essential air service subsidies
as of the date of the enactment
of this paragraph.
``(C) No phasein of reduced ticket tax.--In
the case of transportation beginning before
October 1, 1999--
``(i) In general.--Paragraph (5)
shall not apply to any domestic segment
beginning or ending at an airport which
is a rural airport for the calendar
year in which such segment begins or
ends (as the case may be).
``(ii) Transportation involving
multiple segments.--In the case of
transportation involving more than 1
domestic segment at least 1 of which
does not begin or end at a rural
airport, the 7.5 percent rate
applicable by reason of clause (i)
shall be applied by taking into account
only an amount which bears the same
ratio to the amount paid for such
transportation as the number of
specified miles in domestic segments
which begin or end at a rural airport
bears to the total number of specified
miles in such transportation.
``(2) Amounts paid outside the united states.--In
the case of amounts paid outside the United States for
taxable transportation, the taxes imposed by
subsections (a) and (b) shall apply only if such
transportation begins and ends in the United States.
``(3) Amounts paid for right to award free or
reduced rate air transportation.--
``(A) In general.--Any amount paid (and the
value of any other benefit provided) to an air
carrier (or any related person) for the right
to provide mileage awards for (or other
reductions in the cost of) any transportation
of persons by air shall be treated for purposes
of subsection (a) as an amount paid for taxable
transportation, and such amount shall be
taxable under subsection (a) without regard to
any other provision of this subchapter.
``(B) Controlled group.--For purposes of
subparagraph (A), a corporation and all wholly
owned subsidiaries of such corporation shall be
treated as 1 corporation.
``(C) Regulations.--The Secretary shall
prescribe rules which reallocate items of
income, deduction, credit, exclusion, or other
allowance to the extent necessary to prevent
the avoidance of tax imposed by reason of this
paragraph. The Secretary may prescribe rules
which exclude from the tax imposed by
subsection (a) amounts attributable to mileage
awards which are used other than for
transportation of persons by air.
``(4) Inflation adjustment of dollar rates of
tax.--
``(A) In general.--In the case of taxable
events in a calendar year after the last
nonindexed year, the $3.00 amount contained in
subsection (b) and each dollar amount contained
in subsection (c) shall be increased by an
amount equal to--
``(i) such dollar amount,
multiplied by
``(ii) the cost-of-living
adjustment determined under section
1(f)(3) for such calendar year by
substituting the year before the last
nonindexed year for `calendar year
1992' in subparagraph (B) thereof.
If any increase determined under the preceding
sentence is not a multiple of 10 cents, such
increase shall be rounded to the nearest
multiple of 10 cents.
``(B) Last nonindexed year.--For purposes
of subparagraph (A), the last nonindexed year
is--
``(i) 2002 in the case of the $3.00
amount contained in subsection (b), and
``(ii) 1998 in the case of the
dollar amounts contained in subsection
(c).
``(C) Taxable event.--For purposes of
subparagraph (A), in the case of the tax
imposed subsection (b), the beginning of the
domestic segment shall be treated as the
taxable event.
``(5) Rates of ticket tax for transportation
beginning before october 1, 1999.--Subsection (a) shall
be applied by substituting for `7.5 percent'--
``(A) `9 percent' in the case of
transportation beginning after September 30,
1997, and before October 1, 1998, and
``(B) `8 percent' in the case of
transportation beginning after September 30,
1998, and before October 1, 1999.''.
(3) Secondary liability of carrier for unpaid
tax.--Subsection (c) of section 4263 is amended by
striking ``subchapter--'' and all that follows and
inserting ``subchapter, such tax shall be paid by the
carrier providing the initial segment of such
transportation which begins or ends in the United
States.''.
(d) Increased Airport and Airway Trust Fund Deposits.--
(1) Paragraph (1) of section 9502(b) is amended--
(A) by striking ``(to the extent that the
rate of the tax on such gasoline exceeds 4.3
cents per gallon)'' in subparagraph (C),
(B) by striking ``to the extent
attributable to the Airport and Airway Trust
Fund financing rate'' in subparagraph (D), and
(C) by adding at the end the following
flush sentence:
``There shall not be taken into account under paragraph (1) so
much of the taxes imposed by sections 4081 and 4091 as are
determined at the rates specified in section 4081(a)(2)(B) or
4091(b)(2).''.
(2) Section 9502 is amended by striking subsection
(f).
(e) Effective Dates.--
(1) Fuel taxes.--The amendments made by subsection
(a) shall apply take effect on October 1, 1997.
(2) Ticket taxes.--
(A) In general.--Except as otherwise
provided in this paragraph, the amendments made
by subsections (b) and (c) shall apply to
transportation beginning on or after October 1,
1997.
(B) Treatment of amounts paid for tickets
purchased before date of enactment.--The
amendments made by subsection (c) shall not
apply to amounts paid for a ticket purchased
before the date of the enactment of this Act
for a specified flight beginning on or after
October 1, 1997.
(C) Amounts paid for right to award mileage
awards.--
(i) In general.--Paragraph (3) of
section 4261(e) of the Internal Revenue
Code of 1986 (as added by the amendment
made by subsection (c)) shall apply to
amounts paid (and other benefits
provided) after September 30, 1997.
(ii) Payments within controlled
group.--For purposes of clause (i), any
amount paid after June 11, 1997, and
before October 1, 1997, by 1 member of
a controlled group for a right which is
described in such section 4261(e)(3)
and is furnished by another member of
such group after September 30, 1997,
shall be treated as paid after
September 30, 1997. For purposes of the
preceding sentence, all persons treated
as a single employer under subsection
(a) or (b) of section 52 of such Code
shall be treated as members of a
controlled group.
(3) Increased deposits into airport and airway
trust fund.--The amendments made by subsection (d)
shall apply with respect to taxes received in the
Treasury on and after October 1, 1997.
(g) Delayed Deposits of Airport Trust Fund Tax Revenues.--
Notwithstanding section 6302 of the Internal Revenue Code of
1986--
(1) in the case of deposits of taxes imposed by
section 4261 of such Code, the due date for any such
deposit which would (but for this subsection) be
required to be made after August 14, 1997, and before
October 1, 1997, shall be October 10, 1997,
(2) in the case of deposits of taxes imposed by
section 4261 of such Code, the due date for any such
deposit which would (but for this subsection) be
required to be made after August 14, 1998, and before
October 1, 1998, shall be October 5, 1998, and
(3) in the case of deposits of taxes imposed by
sections 4081(a)(2)(A)(ii), 4091, and 4271 of such
Code, the due date for any such deposit which would
(but for this subsection) be required to be made after
July 31, 1998, and before October 1, 1998, shall be
October 5, 1998.
SEC. 1032. KEROSENE TAXED AS DIESEL FUEL.
(a) In General.--Subsection (a) of section 4083 (defining
taxable fuel) is amended by striking ``and'' at the end of
subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by adding at the
end the following new subparagraph:
``(C) kerosene.''.
(b) Rate of Tax.--Clause (iii) of section 4081(a)(2)(A) is
amended by inserting ``or kerosene'' after ``diesel fuel''.
(c) Exemptions From Tax; Refunds to Vendors.--
(1) In general.--Section 4082 (relating to
exemptions for diesel fuel) is amended by striking
``diesel fuel'' each place it appears in subsections
(a), (c), and (d) and inserting ``diesel fuel and
kerosene''.
(2) Certain kerosene exempt from dyeing
requirement.--Section 4082 is amended by redesignating
subsections (d) and (e) as subsections (e) and (f),
respectively, and by inserting after subsection (c) the
following new subsection:
``(d) Additional Exceptions to Dyeing Requirements for
Kerosene.--
``(1) Aviation-grade kerosene.--Subsection (a)(2)
shall not apply to a removal, entry, or sale of
aviation-grade kerosene (as determined under
regulations prescribed by the Secretary) if the person
receiving the kerosene is registered under section 4101
with respect to the tax imposed by section 4091.
``(2) Use for non-fuel feedstock purposes.--
Subsection (a)(2) shall not apply to kerosene--
``(A) received by pipeline or vessel for
use by the person receiving the kerosene in the
manufacture or production of any substance
(other than gasoline, diesel fuel, or special
fuels referred to in section 4041), or
``(B) to the extent provided in
regulations, removed or entered--
``(i) for such a use by the person
removing or entering the kerosene, or
``(ii) for resale by such person
for such a use by the purchaser,
but only if the person receiving, removing, or entering
the kerosene and such purchaser (if any) are registered
under section 4101 with respect to the tax imposed by
section 4081.
``(3) Wholesale distributors.--To the extent
provided in regulations, subsection (a)(2) shall not
apply to a removal, entry, or sale of kerosene to a
wholesale distributor of kerosene if such distributor--
``(A) is registered under section 4101 with
respect to the tax imposed by section 4081 on
kerosene, and
``(B) sells kerosene exclusively to
ultimate vendors described in section
6427(l)(5)(B) with respect to kerosene.''
(3) Refunds.--
(A) Subsection (l) of section 6427 is
amended by inserting ``or kerosene'' after
``diesel fuel'' each place it appears in
paragraphs (1), (2), and (5) (including the
heading for paragraph (5)).
(B) Paragraph (5) of section 6427(l) is
amended by redesignating subparagraph (B) as
subparagraph (C) and by inserting after
subparagraph (A) the following new
subparagraph:
``(B) Sales of kerosene not for use in
motor fuel.--Paragraph (1)(A) shall not apply
to kerosene sold by a vendor--
``(i) for any use if such sale is
from a pump which (as determined under
regulations prescribed by the
Secretary) is not suitable for use in
fueling any diesel-powered highway
vehicle or train, or
``(ii) to the extent provided by
the Secretary, for blending with
heating oil to be used during periods
of extreme or unseasonable cold.''.
(C) Subparagraph (C) of section 6427(l)(5),
as redesignated by subparagraph (B) of this
paragraph, is amended by striking
``subparagraph (A)'' and inserting
``subparagraph (A) or (B)''.
(D) The heading for subsection (l) of
section 6427 is amended by inserting ``,
Kerosene,'' after ``Diesel Fuel''.
(E) Clause (i) of section 6427(i)(5)(A) is
amended by inserting ``($100 or more in the
case of kerosene)'' after ``$200 or more''.
(d) Certain Approved Terminals of Registered Persons
Required To Offer Dyed Diesel Fuel and Kerosene for Nontaxable
Purposes.--Section 4101 is amended by adding at the end the
following new subsection:
``(e) Certain Approved Terminals of Registered Persons
Required To Offer Dyed Diesel Fuel and Kerosene for Nontaxable
Purposes.--
``(1) In general.--A terminal for kerosene or
diesel fuel may not be an approved facility for storage
of non-tax-paid diesel fuel or kerosene under this
section unless the operator of such terminal offers
dyed diesel fuel and kerosene for removal for
nontaxable use in accordance with section 4082(a).
``(2) Exception.--Paragraph (1) shall not apply to
any terminal exclusively providing aviation-grade
kerosene by pipeline to an airport.''.
(e) Conforming Amendments.--
(1) Paragraph (2) of section 4041(a), as amended by
title IX, is amended by striking ``kerosene,''.
(2) Paragraph (1) of section 4041(c) is amended by
striking ``any liquid'' and inserting ``kerosene and
any other liquid''.
(3)(A) The heading for section 4082 is amended by
inserting ``AND KEROSENE'' after ``DIESEL FUEL''.
(B) The table of sections for subpart A of part III
of subchapter A of chapter 32 is amended by inserting
``and kerosene'' after ``diesel fuel'' in the item
relating to section 4082.
(4) Subsection (b) of section 4083 is amended by
striking ``gasoline, diesel fuel,'' and inserting
``taxable fuels''.
(5) Subsection (a) of section 4093 is amended by
striking ``any liquid'' and inserting ``kerosene and
any other liquid''.
(6) The material following subparagraph (F) of
section 6416(b)(2) is amended by inserting ``or
kerosene'' after ``diesel fuel''.
(7) Paragraphs (1) and (3) of section 6427(f), and
the heading for section 6427(f), are each amended by
inserting ``kerosene,'' after ``diesel fuel,''.
(8) Paragraph (2) of section 6427(f) is amended by
striking ``or diesel fuel'' each place it appears and
inserting ``, diesel fuel, or kerosene''.
(9) Subparagraph (A) of section 6427(i)(3) is
amended by striking ``or diesel fuel'' and inserting
``, diesel fuel, or kerosene''.
(10) The heading for paragraph (4) of section
6427(i) is amended to read as follows:
``(4) Special rule for refunds under subsection
(l).--''
(11) Paragraph (1) of section 6715(c) is amended by
inserting ``or kerosene'' after ``diesel fuel''.
(12)(A) The text of section 7232 is amended by
striking ``gasoline, lubricating oil, diesel fuel'' and
inserting ``any taxable fuel (as defined in section
4083)''.
(B) The section heading for section 7232 is amended
to read as follows:
``SEC. 7232. FAILURE TO REGISTER UNDER SECTION 4101, FALSE
REPRESENTATIONS OF REGISTRATION STATUS, ETC.''.
(C) The table of sections for part II of subchapter
A of chapter 75 is amended by striking the item
relating to section 7232 and inserting the following:
``Sec. 7232. Failure to register under section 4101, false
representations of registration status, etc.''.
(13) Sections 9503(b)(1)(E) and 9508(b)(2) are each
amended by striking ``and diesel fuel'' and inserting
``, diesel fuel, and kerosene''.
(14) Subparagraph (B) of section 9503(b)(5) is
amended by striking ``or diesel fuel'' and inserting
``, diesel fuel, or kerosene''.
(f) Effective Date.--The amendments made by this section
shall take effect on July 1, 1998.
(g) Floor Stock Taxes.--
(1) Imposition of tax.--In the case of kerosene
which is held on July 1, 1998, by any person, there is
hereby imposed a floor stocks tax of 24.4 cents per
gallon.
(2) Liability for tax and method of payment.--
(A) Liability for tax.--A person holding
kerosene on July 1, 1998, to which the
taximposed by paragraph (1) applies shall be liable for such tax.
(B) Method of payment.--The tax imposed by
paragraph (1) shall be paid in such manner as
the Secretary shall prescribe.
(C) Time for payment.--The tax imposed by
paragraph (1) shall be paid on or before August
31, 1998.
(3) Definitions.--For purposes of this subsection--
(A) Held by a person.--Kerosene shall be
considered as ``held by a person'' if title
thereto has passed to such person (whether or
not delivery to the person has been made).
(B) Secretary.--The term ``Secretary''
means the Secretary of the Treasury or his
delegate.
(4) Exception for exempt uses.--The tax imposed by
paragraph (1) shall not apply to kerosene held by any
person exclusively for any use to the extent a credit
or refund of the tax imposed by section 4081 of the
Internal Revenue Code of 1986 is allowable for such
use.
(5) Exception for fuel held in vehicle tank.--No
tax shall be imposed by paragraph (1) on kerosene held
in the tank of a motor vehicle or motorboat.
(6) Exception for certain amounts of fuel.--
(A) In general.--No tax shall be imposed by
paragraph (1) on kerosene held on July 1, 1998,
by any person if the aggregate amount of
kerosene held by such person on such date does
not exceed 2,000 gallons. The preceding
sentence shall apply only if such person
submits to the Secretary (at the time and in
the manner required by the Secretary) such
information as the Secretary shall require for
purposes of this paragraph.
(B) Exempt fuel.--For purposes of
subparagraph (A), there shall not be taken into
account fuel held by any person which is exempt
from the tax imposed by paragraph (1) by reason
of paragraph (4) or (5).
(C) Controlled groups.--For purposes of
this paragraph--
(i) Corporations.--
(I) In general.--All
persons treated as a controlled
group shall be treated as 1
person.
(II) Controlled group.--The
term ``controlled group'' has
the meaning given to such term
by subsection (a) of section
1563 of such Code; except that
for such purposes the phrase
``more than 50 percent'' shall
be substituted for the phrase
``at least 80 percent'' each
place it appears in such
subsection.
(ii) Nonincorporated persons under
common control.--Under regulations
prescribed by the Secretary, principles
similar to the principles of clause (i)
shall apply to a group of persons under
common control where 1 or more of such
persons is not a corporation.
(7) Coordination with section 4081.--No tax shall
be imposed by paragraph (1) on kerosene to the extent
that tax has been (or will be) imposed on such kerosene
under section 4081 or 4091 of such Code.
(8) Other laws applicable.--All provisions of law,
including penalties, applicable with respect to the
taxes imposed by section 4081 of such Code shall,
insofar as applicable and not inconsistent with the
provisions of this subsection, apply with respect to
the floor stock taxes imposed by paragraph (1) to the
same extent as if such taxes were imposed by such
section 4081.
SEC. 1033. RESTORATION OF LEAKING UNDERGROUND STORAGE TANK TRUST FUND
TAXES.
Paragraph (3) of section 4081(d) is amended by striking
``shall not apply after December 31, 1995'' and inserting
``shall apply after September 30, 1997, and before April 1,
2005''.
SEC. 1034. APPLICATION OF COMMUNICATIONS TAX TO PREPAID TELEPHONE
CARDS.
(a) In General.--Section 4251 is amended by adding at the
end the following new subsection:
``(d) Treatment of Prepaid Telephone Cards.--
``(1) In general.--For purposes of this subchapter,
in the case of communications services acquired by
means of a prepaid telephone card--
``(A) the face amount of such card shall be
treated as the amount paid for such
communications services, and
``(B) that amount shall be treated as paid
when the card is transferred by any
telecommunications carrier to any person who is
not such a carrier.
``(2) Determination of face amount in absence of
specified dollar amount.--In the case of any prepaid
telephone card which entitles the user other than to a
specified dollar amount of use, the face amount shall
be determined under regulations prescribed by the
Secretary.
``(3) Prepaid telephone card.--For purposes of this
subsection, the term `prepaid telephone card' means any
card or other similar arrangement which permits its
holder to obtain communications services and pay for
such services in advance.''.
(b) Effective Date.--The amendments made by this section
shall apply to amounts paid in calendar months beginning more
than 60 days after the date of the enactment of this Act.
SEC. 1035. EXTENSION OF TEMPORARY UNEMPLOYMENT TAX.
Section 3301 (relating to rate of unemployment tax) is
amended--
(1) by striking ``1998'' in paragraph (1) and
inserting ``2007'', and
(2) by striking ``1999'' in paragraph (2) and
inserting ``2008''.
Subtitle E--Provisions Relating to Tax-Exempt Entities
SEC. 1041. EXPANSION OF LOOK-THRU RULE FOR INTEREST, ANNUITIES,
ROYALTIES, AND RENTS DERIVED BY SUBSIDIARIES OF
TAX-EXEMPT ORGANIZATIONS.
(a) In General.--Paragraph (13) of section 512(b) is
amended to read as follows:
``(13) Special rules for certain amounts received
from controlled entities.--
``(A) In general.--If an organization (in
this paragraph referred to as the `controlling
organization') receives (directly or
indirectly) a specified payment from another
entity which it controls (in this paragraph
referred to as the `controlled entity'),
notwithstanding paragraphs (1), (2), and (3),
the controlling organization shall include such
payment as an item of gross income derived from
an unrelated trade or business to the extent
such payment reduces the net unrelated income
of the controlled entity (or increases any net
unrelated loss of the controlled entity). There
shall be allowed all deductions of the
controlling organization directly connected
with amounts treated as derived from an
unrelated trade or business under the preceding
sentence.
``(B) Net unrelated income or loss.--For
purposes of this paragraph--
``(i) Net unrelated income.--The
term `net unrelated income' means--
``(I) in the case of a
controlled entity which is not
exempt from tax under section
501(a), the portion of such
entity's taxable income which
would be unrelated business
taxable income if such entity
were exempt from tax under
section 501(a) and had the same
exempt purposes (as defined in
section 513A(a)(5)(A)) as the
controlling organization, or
``(II) in the case of a
controlled entity which is
exempt from tax under section
501(a), the amount of the
unrelated business taxable
income of the controlled
entity.
``(ii) Net unrelated loss.--The
term `net unrelated loss' means the net
operating loss adjusted under rules
similar to the rules of clause (i).
``(C) Specified payment.--For purposes of
this paragraph, the term `specified payment'
means any interest, annuity, royalty, or rent.
``(D) Definition of control.--For purposes
of this paragraph--
``(i) Control.--The term `control'
means--
``(I) in the case of a
corporation, ownership (by vote
or value) of more than 50
percent of the stock in such
corporation,
``(II) in the case of a
partnership, ownership of more
than 50 percent of the profits
interests or capital interests
in such partnership, or
``(III) in any other case,
ownership of more than 50
percent of the beneficial
interests in the entity.
``(ii) Constructive ownership.--
Section 318 (relating to constructive
ownership of stock) shall apply for
purposes of determining ownership of
stock in a corporation. Similar
principles shall apply for purposes of
determining ownership of interests in
any other entity.
``(E) Related persons.--The Secretary shall
prescribe such rules as may be necessary or
appropriate to prevent avoidance of the
purposes of this paragraph through the use of
related persons.''.
(b) Effective Date.--
(1) In general.--Except as provided in paragraph
(2), the amendments made by this section shall apply to
taxable years beginning after the date of the enactment
of this Act.
(2) Binding contracts.--The amendments made by this
section shall not apply to any payment made during the
first 2 taxable years beginning on or after the date of
the enactment of this Act if such payment is made
pursuant to a written binding contract in effect on
June 8, 1997, and at all times thereafter before such
payment.
SEC. 1042. TERMINATION OF CERTAIN EXCEPTIONS FROM RULES RELATING TO
EXEMPT ORGANIZATIONS WHICH PROVIDE COMMERCIAL-TYPE
INSURANCE.
(a) In General.--Subparagraphs (A) and (B) of section
1012(c)(4) of the Tax Reform Act of 1986 shall not apply to any
taxable year beginning after December 31, 1997.
(b) Special Rules.--In the case of an organization to which
section 501(m) of the Internal Revenue Code of 1986 applies
solely by reason of the amendment made by subsection (a)--
(1) no adjustment shall be made under section 481
(or any other provision) of such Code on account of a
change in its method of accounting for its first
taxable year beginning after December 31, 1997, and
(2) for purposes of determining gain or loss, the
adjusted basis of any asset held on the 1st day of such
taxable year shall be treated as equal to its fair
market value as of such day.
(c) Reserve Weakening After June 8, 1997.--Any reserve
weakening after June 8, 1997, by an organization described in
subsection (b) shall be treated as occurring in such
organization's 1st taxable year beginning after December 31,
1997.
(d) Regulations.--The Secretary of the Treasury or his
delegate may prescribe rules for providing proper adjustments
for organizations described in subsection (b) with respect to
short taxable years which begin during 1998 by reason of
section 843 of the Internal Revenue Code of 1986.
Subtitle F--Foreign Provisions
SEC. 1051. DEFINITION OF FOREIGN PERSONAL HOLDING COMPANY INCOME.
(a) Income From Notional Principal Contracts and Payments
in Lieu of Dividends.--
(1) In general.--Paragraph (1) of section 954(c)
(defining foreign personal holding company income) is
amended by adding at the end the following new
subparagraphs:
``(F) Income from notional principal
contracts.--Net income from notional principal
contracts. Any item of income, gain, deduction,
or loss from a notional principal contract
entered into for purposes of hedging any item
described in any preceding subparagraph shall
not be taken into account for purposes of this
subparagraph but shall be taken into account
under such other subparagraph.
``(G) Payments in lieu of dividends.--
Payments in lieu of dividends which are made
pursuant to an agreement to which section 1058
applies.''.
(2) Conforming amendment.--Subparagraph (B) of
section 954(c)(1) is amended--
(A) by striking the second sentence, and
(B) by striking ``also'' in the last
sentence.
(b) Exception for Dealers.--Paragraph (2) of section 954(c)
is amended by adding at the end the following new subparagraph:
``(C) Exception for dealers.--Except as
provided in subparagraph (A), (E), or (G) of
paragraph (1) or by regulations, in the case of
a regular dealer in property (within the
meaning of paragraph (1)(B)), forward
contracts, option contracts, or similar
financial instruments (including notional
principal contracts and all instruments
referenced to commodities), there shall not be
taken into account in computing foreign
personal holding income any item of income,
gain, deduction, or loss from any transaction
(including hedging transactions) entered into
in the ordinary course of such dealer's trade
or business as such a dealer.''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 1052. PERSONAL PROPERTY USED PREDOMINANTLY IN THE UNITED STATES
TREATED AS NOT PROPERTY OF A LIKE KIND WITH RESPECT
TO PROPERTY USED PREDOMINANTLY OUTSIDE THE UNITED
STATES.
(a) In General.--Subsection (h) of section 1031 (relating
to exchange of property held for productive use or investment)
is amended to read as follows:
``(h) Special Rules for Foreign Real and Personal
Property.--For purposes of this section--
``(1) Real property.--Real property located in the
United States and real property located outside the
United States are not property of a like kind.
``(2) Personal property.--
``(A) In general.--Personal property used
predominantly within the United States and
personal property used predominantly outside
the United States are not property of a like
kind.
``(B) Predominant use.--Except as provided
in subparagraph (C) and (D), the predominant
use of any property shall be determined based
on--
``(i) in the case of the property
relinquished in the exchange, the 2-
year period ending on the date of such
relinquishment, and
``(ii) in the case of the property
acquired in the exchange, the 2-year
period beginning on the date of such
acquisition.
``(C) Property held for less than 2
years.--Except in the case of an exchange which
is part of a transaction (or series of
transactions) structured to avoid the purposes
of this subsection--
``(i) only the periods the property
was held by the person relinquishing
the property (or any related person)
shall be taken into account under
subparagraph (B)(i), and
``(ii) only the periods the
property was held by the person
acquiring the property (or any related
person) shall be taken into account
under subparagraph (B)(ii).
``(D) Special rule for certain property.--
Property described in any subparagraph of
section 168(g)(4) shall be treated as used
predominantly in the United States.''.
(b) Effective Date.--
(1) In general.--The amendment made by this section
shall apply to transfers after June 8, 1997, in taxable
years ending after such date.
(2) Binding contracts.--The amendment made by this
section shall not apply to any transfer pursuant to a
written binding contract in effect on June 8, 1997, and
at all times thereafter before the disposition of
property. A contract shall not fail to meet the
requirements of the preceding sentence solely because--
(A) it provides for a sale in lieu of an
exchange, or
(B) the property to be acquired as
replacement property was not identified under
such contract before June 9, 1997.
SEC. 1053. HOLDING PERIOD REQUIREMENT FOR CERTAIN FOREIGN TAXES.
(a) In General.--Section 901 is amended by redesignating
subsection (k) as subsection (l) and by inserting after
subsection (j) the following new subsection:
``(k) Minimum Holding Period for Certain Taxes.--
``(1) Withholding taxes.--
``(A) In general.--In no event shall a
credit be allowed under subsection (a) for any
withholding tax on a dividend with respect to
stock in a corporation if--
``(i) such stock is held by the
recipient of the dividend for 15 days
or less during the 30-day period
beginning on the date which is 15 days
before the date on which such share
becomes ex-dividend with respect to
such dividend, or
``(ii) to the extent that the
recipient of the dividend is under an
obligation (whether pursuant to a short
sale or otherwise) to make related
payments with respect to positions in
substantially similar or related
property.
``(B) Withholding tax.--For purposes of
this paragraph, the term `withholding tax'
includes any tax determined on a gross basis;
but does not include any tax which is in the
nature of a prepayment of a tax imposed on a
net basis.
``(2) Deemed paid taxes.--In the case of income,
war profits, or excess profits taxes deemed paid under
section 853, 902, or 960 through a chain of ownership
of stock in 1 or more corporations, no credit shall be
allowed under subsection (a) for such taxes if--
``(A) any stock of any corporation in such
chain (the ownership of which is required to
obtain credit under subsection (a) for such
taxes) is held for less than the period
described in paragraph (1)(A)(i), or
``(B) the corporation holding the stock is
under an obligation referred to in paragraph
(1)(A)(ii).
``(3) 45-day rule in the case of certain preference
dividends.--In the case of stock having preference in
dividends and dividends with respect to such stock
which are attributable to a period or periods
aggregating in excess of 366 days, paragraph (1)(A)(i)
shall be applied--
``(A) by substituting `45 days' for `15
days' each place it appears, and
``(B) by substituting `90-day period' for
`30-day period'.
``(4) Exception for certain taxes paid by
securities dealers.--
``(A) In general.--Paragraphs (1) and (2)
shall not apply to any qualified tax with
respect to any security held in the active
conductin a foreign country of a securities
business of any person--
``(i) who is registered as a
securities broker or dealer under
section 15(a) of the Securities
Exchange Act of 1934,
``(ii) who is registered as a
Government securities broker or dealer
under section 15C(a) of such Act, or
``(iii) who is licensed or
authorized in such foreign country to
conduct securities activities in such
country and is subject to bona fide
regulation by a securities regulating
authority of such country.
``(B) Qualified tax.--For purposes of
subparagraph (A), the term `qualified tax'
means a tax paid to a foreign country (other
than the foreign country referred to in
subparagraph (A)) if--
``(i) the dividend to which such
tax is attributable is subject to
taxation on a net basis by the country
referred to in subparagraph (A), and
``(ii) such country allows a credit
against its net basis tax for the full
amount of the tax paid to such other
foreign country.
``(C) Regulations.--The Secretary may
prescribe such regulations as may be
appropriate to carry out this paragraph,
including regulations to prevent the abuse of
the exception provided by this paragraph and to
treat other taxes as qualified taxes.
``(5) Certain rules to apply.--For purposes of this
subsection, the rules of paragraphs (3) and (4) of
section 246(c) shall apply.
``(6) Treatment of bona fide sales.--If a person's
holding period is reduced by reason of the application
of the rules of section 246(c)(4) to any contract for
the bona fide sale of stock, the determination of
whether such person's holding period meets the
requirements of paragraph (2) with respect to taxes
deemed paid under section 902 or 960 shall be made as
of the date such contract is entered into.
``(7) Taxes allowed as deduction, etc.--Sections
275 and 78 shall not apply to any tax which is not
allowable as a credit under subsection (a) by reason of
this subsection.''.
(b) Notice of Withholding Taxes Paid by Regulated
Investment Company.--Subsection (c) of section 853 (relating to
foreign tax credit allowed to shareholders) is amended by
adding at the end the following new sentence: ``Such notice
shall also include the amount of such taxes which (without
regard to the election under this section) would not be
allowable as a credit under section 901(a) to the regulated
investment company by reason of section 901(k).''.
(c) Effective Date.--The amendments made by this section
shall apply to dividends paid or accrued more than 30 days
after the date of the enactment of this Act.
SEC. 1054. DENIAL OF TREATY BENEFITS FOR CERTAIN PAYMENTS THROUGH
HYBRID ENTITIES.
(a) In General.--Section 894 (relating to income affected
by treaty) is amended by inserting after subsection (b) the
following new subsection:
``(c) Denial of Treaty Benefits for Certain Payments
Through Hybrid Entities.--
``(1) Application to certain payments.--A foreign
person shall not be entitled under any income tax
treaty of the United States with a foreign country to
any reduced rate of any withholding tax imposed by this
title on an item of income derived through an entity
which is treated as a partnership (or is otherwise
treated as fiscally transparent) for purposes of this
title if--
``(A) such item is not treated for purposes
of the taxation laws of such foreign country as
an item of income of such person,
``(B) the treaty does not contain a
provision addressing the applicability of the
treaty in the case of an item of income derived
through a partnership, and
``(C) the foreign country does not impose
tax on a distribution of such item of income
from such entity to such person.
``(2) Regulations.--The Secretary shall prescribe
such regulations as may be necessary or appropriate to
determine the extent to which a taxpayer to which
paragraph (1) does not apply shall not be entitled to
benefits under any income tax treaty of the United
States with respect to any payment received by, or
income attributable to any activities of, an entity
organized in any jurisdiction (including the United
States) that is treated as a partnership or is
otherwise treated as fiscally transparent for purposes
of this title (including a common investment trust
under section 584, a grantor trust, or an entity that
is disregarded for purposes of this title) and is
treated as fiscally nontransparent for purposes of the
tax laws of the jurisdiction of residence of the
taxpayer.''.
(b) Effective Date.--The amendments made by this section
shall apply upon the date of enactment of this Act.
SEC. 1055. INTEREST ON UNDERPAYMENTS NOT REDUCED BY FOREIGN TAX CREDIT
CARRYBACKS.
(a) In General.--Subsection (d) of section 6601 is amended
by redesignating paragraphs (2) and (3) as paragraphs (3) and
(4), respectively, and by inserting after paragraph (1) the
following new paragraph:
``(2) Foreign tax credit carrybacks.--If any credit
allowed for any taxable year is increased by reason of
a carryback of tax paid or accrued to foreign countries
or possessions of the United States, such increase
shall not affect the computation of interest under this
section for the period ending with the filing date for
the taxable year in which such taxes were in fact paid
or accrued, or, with respect to any portion of such
credit carryback from a taxable year attributable to a
net operating loss carryback or a capital loss
carryback from a subsequent taxable year, such increase
shall not affect the computation of interest under this
section for theperiod ending with the filing date for
such subsequent taxable year.''.
(b) Conforming Amendment to Refunds Attributable to Foreign
Tax Credit Carrybacks.--
(1) In general.--Subsection (f) of section 6611 is
amended by redesignating paragraphs (2) and (3) as
paragraphs (3) and (4), respectively, and by inserting
after paragraph (1) the following new paragraph:
``(2) Foreign tax credit carrybacks.--For purposes
of subsection (a), if any overpayment of tax imposed by
subtitle A results from a carryback of tax paid or
accrued to foreign countries or possessions of the
United States, such overpayment shall be deemed not to
have been made before the filing date for the taxable
year in which such taxes were in fact paid or accrued,
or, with respect to any portion of such credit
carryback from a taxable year attributable to a net
operating loss carryback or a capital loss carryback
from a subsequent taxable year, such overpayment shall
be deemed not to have been made before the filing date
for such subsequent taxable year.''.
(2) Conforming amendments.--
(A) Paragraph (4) of section 6611(f) (as so
redesignated) is amended--
(i) by striking ``paragraphs (1)
and (2)'' and inserting ``paragraphs
(1), (2), and (3)'', and
(ii) by striking ``paragraph (1) or
(2)'' each place it appears and
inserting ``paragraph (1), (2), or
(3)''.
(B) Clause (ii) of section 6611(f)(4)(B)
(as so redesignated) is amended by striking
``and'' at the end of subclause (I), by
redesignating subclause (II) as subclause
(III), and by inserting after subclause (I) the
following new subclause:
``(II) in the case of a
carryback of taxes paid or
accrued to foreign countries or
possessions of the United
States, the taxable year in
which such taxes were in fact
paid or accrued (or, with
respect to any portion of such
carryback from a taxable year
attributable to a net operating
loss carryback or a capital
loss carryback from a
subsequent taxable year, such
subsequent taxable year),
and''.
(C) Subclause (III) of section
6611(f)(4)(B)(ii) (as so redesignated) is
amended by inserting ``(as defined in paragraph
(3)(B))'' after ``credit carryback'' the first
place it appears.
(D) Section 6611 is amended by striking
subsection (g) and by redesignating subsections
(h) and (i) as subsections (g) and (h),
respectively.
(c) Effective Date.--The amendments made by this section
shall apply to foreign tax credit carrybacks arising in taxable
years beginning after the date of the enactment of this Act.
SEC. 1056. CLARIFICATION OF PERIOD OF LIMITATIONS ON CLAIM FOR CREDIT
OR REFUND ATTRIBUTABLE TO FOREIGN TAX CREDIT
CARRYFORWARD.
(a) In General.--Subparagraph (A) of section 6511(d)(3) is
amended by striking ``for the year with respect to which the
claim is made'' and inserting ``for the year in which such
taxes were actually paid or accrued''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxes paid or accrued in taxable years beginning
after the date of the enactment of this Act.
SEC. 1057. REPEAL OF EXCEPTION TO ALTERNATIVE MINIMUM FOREIGN TAX
CREDIT LIMIT.
(a) In General.--Section 59(a)(2) (relating to limitation
to 90 percent of tax) is amended by striking subparagraph (C).
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
Subtitle G--Partnership Provisions
SEC. 1061. ALLOCATION OF BASIS AMONG PROPERTIES DISTRIBUTED BY
PARTNERSHIP.
(a) In General.--Subsection (c) of section 732 is amended
to read as follows:
``(c) Allocation of Basis.--
``(1) In general.--The basis of distributed
properties to which subsection (a)(2) or (b) is
applicable shall be allocated--
``(A)(i) first to any unrealized
receivables (as defined in section 751(c)) and
inventory items (as defined in section
751(d)(2)) in an amount equal to the adjusted
basis of each such property to the partnership,
and
``(ii) if the basis to be allocated is less
than the sum of the adjusted bases of such
properties to the partnership, then, to the
extent any decrease is required in order to
have the adjusted bases of such properties
equal the basis to be allocated, in the manner
provided in paragraph (3), and
``(B) to the extent of any basis remaining
after the allocation under subparagraph (A), to
other distributed properties--
``(i) first by assigning to each
such other property such other
property's adjusted basis to the
partnership, and
``(ii) then, to the extent any
increase or decrease in basis is
required in order to have the adjusted
bases of such other distributed
properties equal such remaining basis,
in the manner provided in paragraph (2)
or (3), whichever is appropriate.
``(2) Method of allocating increase.--Any increase
required under paragraph (1)(B) shall be allocated
among the properties--
``(A) first to properties with unrealized
appreciation in proportion to their respective
amounts of unrealized appreciation before such
increase (but only to the extent of each
property's unrealized appreciation), and
``(B) then, to the extent such increase is
not allocated under subparagraph (A), in
proportion to their respective fair market
values.
``(3) Method of allocating decrease.--Any decrease
required under paragraph (1)(A) or (1)(B) shall be
allocated--
``(A) first to properties with unrealized
depreciation in proportion to their respective
amounts of unrealized depreciation before such
decrease (but only to the extent of each
property's unrealized depreciation), and
``(B) then, to the extent such decrease is
not allocated under subparagraph (A), in
proportion to their respective adjusted bases
(as adjusted under subparagraph (A)).''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to distributions after the date of the enactment of
this Act.
SEC. 1062. REPEAL OF REQUIREMENT THAT INVENTORY BE SUBSTANTIALLY
APPRECIATED WITH RESPECT TO SALE OR EXCHANGE OF
PARTNERSHIP INTEREST.
(a) In General.--Paragraph (2) of section 751(a) is amended
to read as follows:
``(2) inventory items of the partnership,''.
(b) Conforming Amendments.--
(1)(A) Paragraph (1) of section 751(b) is amended
by striking subparagraphs (A) and (B) and inserting the
following new subparagraphs:
``(A) partnership property which is--
``(i) unrealized receivables, or
``(ii) inventory items which have
appreciated substantially in value,
in exchange for all or a part of his interest
in other partnership property (including
money), or
``(B) partnership property (including
money) other than property described in
subparagraph (A)(i) or (ii) in exchange for all
or a part of his interest in partnership
property described in subparagraph (A)(i) or
(ii),''.
(B) Subsection (b) of section 751 is amended by
adding at the end the following new paragraph:
``(3) Substantial appreciation.--For purposes of
paragraph (1)--
``(A) In general.--Inventory items of the
partnership shall be considered to have
appreciated substantially in value if their
fair market value exceeds 120 percent of the
adjusted basis to the partnership of such
property.
``(B) Certain property excluded.--For
purposes of subparagraph (A), there shall be
excluded any inventory property if a principal
purpose for acquiring such property was to
avoid the provisions of this subsection
relating to inventory items.''
(2) Subsection (d) of section 751 is amended to
read as follows:
``(d) Inventory Items.--For purposes of this subchapter,
the term `inventory items' means--
``(1) property of the partnership of the kind
described in section 1221(1),
``(2) any other property of the partnership which,
on sale or exchange by the partnership, would be
considered property other than a capital asset and
other than property described in section 1231,
``(3) any other property of the partnership which,
if sold or exchanged by the partnership, would result
in a gain taxable under subsection (a) of section 1246
(relating to gain on foreign investment company stock),
and
``(4) any other property held by the partnership
which, if held by the selling or distributee partner,
would be considered property of the type described in
paragraph (1), (2), or (3).''.
(3) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6),
732(c)(1)(A) (as amended by the preceding section),
735(a)(2), and 735(c)(1) are each amended by striking
``section 751(d)(2)'' and inserting ``section 751(d)''.
(c) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to sales, exchanges, and
distributions after the date of the enactment of this
Act.
(2) Binding contracts.--The amendments made by this
section shall not apply to any sale or exchange
pursuant to a written binding contract in effect on
June 8, 1997, and at all times thereafter before such
sale or exchange.
SEC. 1063. EXTENSION OF TIME FOR TAXING PRECONTRIBUTION GAIN.
(a) In General.--Sections 704(c)(1)(B) and 737(b)(1) are
each amended by striking ``5 years'' and inserting ``7 years''.
(b) Effective Date.--
(1) In general.--The amendment made by subsection
(a) shall apply to property contributed to a
partnership after June 8, 1997.
(2) Binding contracts.--The amendment made by
subsection (a) shall not apply to any property
contributed pursuant to a written binding contract in
effect on June 8, 1997, and at all times thereafter
before such contribution if such contract provides for
the contribution of a fixed amount of property.
Subtitle H--Pension Provisions
SEC. 1071. PENSION ACCRUED BENEFIT DISTRIBUTABLE WITHOUT CONSENT
INCREASED TO $5,000.
(a) Amendment to 1986 Code.--
(1) In general.--Subparagraph (A) of section
411(a)(11) (relating to restrictions on certain
mandatory distributions) is amended by striking
``$3,500'' and inserting ``$5,000''.
(2) Conforming amendments.--
(A) Section 411(a)(7)(B), paragraphs (1)
and (2) of section 417(e), and section
457(e)(9) are each amended by striking
``$3,500'' each place it appears (other than
the headings) and inserting ``the dollar limit
under section 411(a)(11)(A)''.
(B) The headings for paragraphs (1) and (2)
of section 417(e) and subparagraph (A) of
section 457(e)(9) are each amended by striking
``$3,500'' and inserting ``dollar limit''.
(b) Amendments to ERISA.--
(1) In general.--Section 203(e)(1) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1053(e)(1)) is amended by striking ``$3,500'' and
inserting ``$5,000''.
(2) Conforming amendments.--Sections 204(d)(1) and
205(g) (1) and (2) (29 U.S.C. 1054(d)(1) and 1055(g)
(1) and (2)) are each amended by striking ``$3,500''
and inserting ``the dollar limit under section
203(e)(1)''.
(c) Effective Date.--The amendments made by this section
shall apply to plan years beginning after the date of the
enactment of this Act.
SEC. 1072. ELECTION TO RECEIVE TAXABLE CASH COMPENSATION IN LIEU OF
NONTAXABLE PARKING BENEFITS.
(a) In General.--Section 132(f)(4) (relating to benefits
not in lieu of compensation) is amended by adding at the end
the following new sentence: ``This paragraph shall not apply to
any qualified parking provided in lieu of compensation which
otherwise would have been includible in gross income of the
employee, and no amount shall be included in the gross income
of the employee solely because the employee may choose between
the qualified parking and compensation.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 1073. REPEAL OF EXCESS DISTRIBUTION AND EXCESS RETIREMENT
ACCUMULATION TAX.
(a) Repeal of Excess Distribution and Excess Retirement
Accumulation Tax.--Section 4980A (relating to excess
distributions from qualified retirement plans) is repealed.
(b) Conforming Amendments.--
(1) Section 691(c)(1) is amended by striking
subparagraph (C).
(2) Section 2013 is amended by striking subsection
(g).
(3) Section 2053(c)(1)(B) is amended by striking
the last sentence.
(4) Section 6018(a) is amended by striking
paragraph (4).
(c) Effective Dates.--
(1) Excess distribution tax repeal.--Except as
provided in paragraph (2), the repeal made by
subsection (a) shall apply to excess distributions
received after December 31, 1996.
(2) Excess retirement accumulation tax repeal.--The
repeal made by subsection (a) with respect to section
4980A(d) of the Internal Revenue Code of 1986 and the
amendments made by subsection (b) shall apply to
estates of decedents dying after December 31, 1996.
SEC. 1074. INCREASE IN TAX ON PROHIBITED TRANSACTIONS.
(a) In General.--Section 4975(a) is amended by striking
``10 percent'' and inserting ``15 percent''.
(b) Effective Date.--The amendment made by this section
shall apply to prohibited transactions occurring after the date
of the enactment of this Act.
SEC. 1075. BASIS RECOVERY RULES FOR ANNUITIES OVER MORE THAN ONE LIFE.
(a) In General.--Section 72(d)(1)(B) is amended by adding
at the end the following new clause:
``(iv) Number of anticipated
payments where more than one life.--If
the annuity is payable over the lives
of more than 1 individual, the number
of anticipated payments shall be
determined as follows:
``If the combined ages
of annuitants are: The number is:
Not more than 110......................................... 410
More than 110 but not more than 120....................... 360
More than 120 but not more than 130....................... 310
More than 130 but not more than 140....................... 260
More than 140............................................. 210.''.
(b) Conforming Amendment.--Section 72(d)(1)(B)(iii) is
amended--
(1) by inserting ``If the annuity is payable over
the life of a single individual, the number of
anticipated payments shall be determined as follows:''
after the heading and before the table, and
(2) by striking ``primary'' in the table.
(c) Effective Date.--The amendments made by this section
shall apply with respect to annuity starting dates beginning
after December 31, 1997.
Subtitle I--Other Revenue Provisions
SEC. 1081. TERMINATION OF SUSPENSE ACCOUNTS FOR FAMILY CORPORATIONS
REQUIRED TO USE ACCRUAL METHOD OF ACCOUNTING.
(a) In General.--Subsection (i) of section 447 (relating to
method of accounting for corporations engaged in farming) is
amended by striking paragraphs (3) and (4), by redesignating
paragraphs (5) and (6) as paragraphs (3) and (4), respectively,
and by adding at the end the following new paragraph:
``(5) Termination.--
``(A) In general.--No suspense account may
be established under this subsection by any
corporation required by this section to change
its method of accounting for any taxable year
ending after June 8, 1997.
``(B) Phaseout of existing suspense
accounts.--
``(i) In general.--Each suspense
account under this subsection shall be
reduced (but not below zero) for each
taxable year beginning after June 8,
1997, by an amount equal to the lesser
of--
``(I) the applicable
portion of such account, or
``(II) 50 percent of the
taxable income of the
corporation for the taxable
year, or, if the corporation
has no taxable income for such
year, the amount of any net
operating loss (as defined in
section 172(c)) for such
taxable year.
For purposes of the preceding sentence,
the amount of taxable income and net
operating loss shall be determined
without regard to this paragraph.
``(ii) Coordination with other
reductions.--The amount of the
applicable portion for any taxable year
shall be reduced (but not below zero)
by the amount of any reduction required
for such taxable year under any other
provision of this subsection.
``(iv) Inclusion in income.--Any
reduction in a suspense account under
this paragraph shall be included in
gross income for the taxable year of
the reduction.
``(C) Applicable portion.--For purposes of
subparagraph (B), the term `applicable portion'
means, for any taxable year, the amount which
would ratably reduce the amount in the account
(after taking into account prior reductions) to
zero over the period consisting of such taxable
year and the remaining taxable years in such
first 20 taxable years.
``(D) Amounts after 20th year.--Any amount
in the account as of the close of the 20th year
referred to in subparagraph (C) shall be
treated as the applicable portion for each
succeeding year thereafter to the extent not
reduced under this paragraph for any prior
taxable year after such 20th year.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years ending after June 8, 1997.
SEC. 1082. MODIFICATION OF TAXABLE YEARS TO WHICH NET OPERATING LOSSES
MAY BE CARRIED.
(a) In General.--Subparagraph (A) of section 172(b)(1)
(relating to years to which loss may be carried) is amended--
(1) by striking ``3'' in clause (i) and inserting
``2'', and
(2) by striking ``15'' in clause (ii) and inserting
``20''.
(b) Retention of 3-Year Carryback for Certain Losses.--
Paragraph (1) of section 172(b) is amended by adding at the end
the following new subparagraph:
``(F) Retention of 3-year carryback in
certain cases.--
``(i) In general.--Subparagraph
(A)(i) shall be applied by substituting
`3 years' for `2 years' with respect to
the portion of the net operating loss
for the taxable year which is an
eligible loss with respect to the
taxpayer.
``(ii) Eligible loss.--For purposes
of clause (i), the term `eligible loss'
means--
``(I) in the case of an
individual, losses of property
arising from fire, storm,
shipwreck, or other casualty,
or from theft,
``(II) in the case of a
taxpayer which is a small
business, net operating losses
attributable to Presidentially
declared disasters (as defined
in section 1033(h)(3)), and
``(III) in the case of a
taxpayer engaged in the trade
or business of farming (as
defined in section 263A(e)(4)),
net operating losses
attributable to such
Presidentially declared
disasters.
``(iii) Small business.--For
purposes of this subparagraph, the term
`small business' means a corporation or
partnership which meets the gross
receipts test of section 448(c) for the
taxable year in which the loss arose
(or, in the case of a sole
proprietorship, which would meet such
test if such proprietorship were a
corporation).''.
(c) Effective Date.--The amendments made by this section
shall apply to net operating losses for taxable years beginning
after the date of the enactment of this Act.
SEC. 1083. MODIFICATIONS TO TAXABLE YEARS TO WHICH UNUSED CREDITS MAY
BE CARRIED.
(a) In General.--Section 39(a) (relating to unused credits)
is amended--
(1) in paragraph (1), by striking ``3'' each place
it appears and inserting ``1'' and by striking ``15''
each place it appears and inserting ``20''; and
(2) in paragraph (2), by striking ``18'' each place
it appears and inserting ``22'' and by striking ``17''
each place it appears and inserting ``21''.
(b) Effective Date.--The amendments made by this section
shall apply to credits arising in taxable years beginning after
December 31, 1997.
SEC. 1084. EXPANSION OF DENIAL OF DEDUCTION FOR CERTAIN AMOUNTS PAID IN
CONNECTION WITH INSURANCE.
(a) Denial of Deduction for Premiums.--
(1) In general.--Paragraph (1) of section 264(a) is
amended to read as follows:
``(1) Premiums on any life insurance policy, or
endowment or annuity contract, if the taxpayer is
directly or indirectly a beneficiary under the policy
or contract.''.
(2) Exceptions.--Section 264 is amended by
redesignating subsections (b), (c), and (d) as
subsections (c), (d), and (e), respectively, and by
inserting after subsection (a) the following new
subsection:
``(b) Exceptions to Subsection (a)(1).--Subsection (a)(1)
shall not apply to--
``(1) any annuity contract described in section
72(s)(5), and
``(2) any annuity contract to which section 72(u)
applies.''.
(b) Interest on Policy Loans.--
(1) In general.--Paragraph (4) of section 264(a) is
amended by striking ``individual, who'' and all that
follows and inserting ``individual.''.
(2) Coordination with transfers for value.--
Paragraph (2) of section 101(a) is amended by adding at
the end the following new flush sentence:
``The term `other amounts' in the first sentence of
this paragraph includes interest paid or accrued by the
transferee on indebtedness with respect to such
contract or any interest therein if such interest paid
or accrued is not allowable as a deduction by reason of
section 264(a)(4).''.
(c) Pro Rata Allocation of Interest Expense to Policy Cash
Values.--Section 264 is amended by adding at the end the
following new subsection:
``(f) Pro Rata Allocation of Interest Expense to Policy
Cash Values.--
``(1) In general.--No deduction shall be allowed
for that portion of the taxpayer's interest expense
which is allocable to unborrowed policy cash values.
``(2) Allocation.--For purposes of paragraph (1),
the portion of the taxpayer's interest expense which is
allocable to unborrowed policy cash values is an amount
which bears the same ratio to such interest expense
as--
``(A) the taxpayer's average unborrowed
policy cash values of life insurance policies,
and annuity and endowment contracts, issued
after June 8, 1997, bears to
``(B) the sum of--
``(i) in the case of assets of the
taxpayer which are life insurance
policies or annuity or endowment
contracts, the average unborrowed
policy cash values of such policies and
contracts, and
``(ii) in the case of assets of the
taxpayer not described in clause (i),
the average adjusted bases (within the
meaning of section 1016) of such
assets.
``(3) Unborrowed policy cash value.--For purposes
of this subsection, the term `unborrowed policy cash
value' means, with respect to any life insurance policy
or annuity or endowment contract, the excess of--
``(A) the cash surrender value of such
policy or contract determined without regard to
any surrender charge, over
``(B) the amount of any loan with respect
to such policy or contract.
``(4) Exception for certain policies and
contracts.--
``(A) Policies and contracts covering 20-
percent owners, officers, directors, and
employees.--Paragraph (1) shall not apply to
any policy or contract owned by an entity
engaged in a trade or business if such policy
or contract covers only 1 individual and if
such individual is (at the time first covered by the policy or
contract)--
``(i) a 20-percent owner of such
entity, or
``(ii) an individual (not described
in clause (i)) who is an officer,
director, or employee of such trade or
business.
A policy or contract covering a 20-percent
owner of such entity shall not be treated as
failing to meet the requirements of the
preceding sentence by reason of covering the
joint lives of such owner and such owner's
spouse.
``(B) Contracts subject to current income
inclusion.--Paragraph (1) shall not apply to
any annuity contract to which section 72(u)
applies.
``(C) Coordination with paragraph (2).--Any
policy or contract to which paragraph (1) does
not apply by reason of this paragraph shall not
be taken into account under paragraph (2).
``(D) 20-percent owner.--For purposes of
subparagraph (A), the term `20-percent owner'
has the meaning given such term by subsection
(e)(4).
``(5) Exception for policies and contracts held by
natural persons; treatment of partnerships and s
corporations.--
``(A) Policies and contracts held by
natural persons.--
``(i) In general.--This subsection
shall not apply to any policy or
contract held by a natural person.
``(ii) Exception where business is
beneficiary.--If a trade or business is
directly or indirectly the beneficiary
under any policy or contract, such
policy or contract shall be treated as
held by such trade or business and not
by a natural person.
``(iii) Special rules.--
``(I) Certain trades or
businesses not taken into
account.--Clause (ii) shall not
apply to any trade or business
carried on as a sole
proprietorship and to any trade
or business performing services
as an employee.
``(II) Limitation on
unborrowed cash value.--The
amount of the unborrowed cash
value of any policy or contract
which is taken into account by
reason of clause (ii) shall not
exceed the benefit to which the
trade or business is directly
or indirectly entitled under
the policy or contract.
``(iv) Reporting.--The Secretary
shall require such reporting from
policyholders and issuers as is
necessary to carry out clause (ii). Any
report required under the preceding
sentence shall be treated as a
statement referred to in section
6724(d)(1).
``(B) Treatment of partnerships and s
corporations.--In the case of a partnership or
S corporation, this subsection shall be applied
at the partnership and corporate levels.
``(6) Special rules.--
``(A) Coordination with subsection (a) and
section 265.--If interest on any indebtedness
is disallowed under subsection (a) or section
265--
``(i) such disallowed interest
shall not be taken into account for
purposes of applying this subsection,
and
``(ii) the amount otherwise taken
into account under paragraph (2)(B)
shall be reduced (but not below zero)
by the amount of such indebtedness.
``(B) Coordination with section 263a.--This
subsection shall be applied before the
application of section 263A (relating to
capitalization of certain expenses where
taxpayer produces property).
``(7) Interest expense.--The term `interest
expense' means the aggregate amount allowable to the
taxpayer as a deduction for interest (within the
meaning of section 265(b)(4)) for the taxable year
(determined without regard to this subsection, section
265(b), and section 291).
``(8) Aggregation rules.--
``(A) In general.--All members of a
controlled group (within the meaning of
subsection (d)(5)(B)) shall be treated as 1
taxpayer for purposes of this subsection.
``(B) Treatment of insurance companies.--
This subsection shall not apply to an insurance
company subject to tax under subchapter L, and
subparagraph (A) shall be applied without
regard to any member of an affiliated group
which is an insurance company.''.
(b) Treatment of Insurance Companies.--
(1)(A) Clause (ii) of section 805(a)(4)(C) is
amended by inserting ``, or out of the increase for the
taxable year in policy cash values (within the meaning
of subparagraph (F)) of life insurance policies and
annuity and endowment contracts to which section 264(f)
applies,'' after ``tax-exempt interest''.
(B) Clause (iii) of section 805(a)(4)(D) is amended
by striking ``and'' and inserting ``, the increase for
the taxable year in policy cash values (within the
meaning of subparagraph (F)) of life insurance policies
and annuity and endowment contracts to which section
264(f) applies, and''.
(C) Paragraph (4) of section 805(a) is amended by
adding at the end the following new subparagraph:
``(F) Increase in policy cash values.--For
purposes of subparagraphs (C) and (D)--
``(i) In general.--The increase in
the policy cash value for any taxable
year with respect to policy or contract
is the amount of the increase in the
adjusted cash value during such taxable
year determined without regard to--
``(I) gross premiums paid
during such taxable year, and
``(II) distributions (other
than amounts includible in the
policyholder's gross income)
during such taxable year to
which section 72(e) applies.
``(ii) Adjusted cash value.--For
purposes of clause (i), the term
`adjusted cash value' means the cash
surrender value of the policy or
contract increased by the sum of--
``(I) commissions payable
with respect to such policy or
contract for the taxable year,
and
``(II) asset management
fees, surrender charges,
mortality and expense charges,
and any other fees or charges
specified in regulations
prescribed by the Secretary
which are imposed (or which
would be imposed were the
policy or contract canceled)
with respect to such policy or contract for the taxable year.''.
(2)(A) Subparagraph (B) of section 807(a)(2) is
amended by striking ``interest,'' and inserting
``interest and the amount of the policyholder's share
of the increase for the taxable year in policy cash
values (within the meaning of section 805(a)(4)(F)) of
life insurance policies and annuity and endowment
contracts to which section 264(f) applies,''.
(B) Subparagraph (B) of section 807(b)(1) is
amended by striking ``interest,'' and inserting
``interest and the amount of the policyholder's share
of the increase for the taxable year in policy cash
values (within the meaning of section 805(a)(4)(F)) of
life insurance policies and annuity and endowment
contracts to which section 264(f) applies,''.
(3) Paragraph (1) of section 812(d) is amended by
striking ``and'' at the end of subparagraph (B), by
striking the period at the end of subparagraph (C) and
inserting ``, and'', and by adding at the end the
following new subparagraph:
``(D) the increase for any taxable year in
the policy cash values (within the meaning of
section 805(a)(4)(F)) of life insurance
policies and annuity and endowment contracts to
which section 264(f) applies.''.
(4) Subparagraph (B) of section 832(b)(5) is
amended by striking ``and'' at the end of clause (i),
by striking the period at the end of clause (ii) and
inserting ``, and'', and by adding at the end the
following new clause:
``(iii) the increase for the
taxable year in policy cash values
(within the meaning of section
805(a)(4)(F)) of life insurance
policies and annuity and endowment
contracts to which section 264(f)
applies.''.
(c) Conforming Amendment.--Subparagraph (A) of section
265(b)(4) is amended by inserting ``, section 264,'' before
``and section 291''.
(d) Effective Date.--The amendments made by this section
shall apply to contracts issued after June 8, 1997, in taxable
years ending after such date. For purposes of the preceding
sentence, any material increase in the death benefit or other
material change in the contract shall be treated as a new
contract but the addition of covered lives shall be treated as
a new contract only with respect to such additional covered
lives. For purposes of this subsection, an increase in the
death benefit under a policy or contract issued in connection
with a lapse described in section 501(d)(2) of the Health
Insurance Portability and Accountability Act of 1996 shall not
be treated as a new contract.
SEC. 1085. IMPROVED ENFORCEMENT OF THE APPLICATION OF THE EARNED INCOME
CREDIT.
(a) Restrictions on Availability of Earned Income Credit
for Taxpayers who Improperly Claimed Credit in Prior Year.--
(1) In general.--Section 32 is amended by
redesignating subsections (k) and (l) as subsections
(l) and (m), respectively, and by inserting after
subsection (j) the following new subsection:
``(k) Restrictions on Taxpayers Who Improperly Claimed
Credit in Prior Year.--
``(1) Taxpayers making prior fraudulent or reckless
claims.--
``(A) In general.--No credit shall be
allowed under this section for any taxable year
in the disallowance period.
``(B) Disallowance period.--For purposes of
paragraph (1), the disallowance period is--
``(i) the period of 10 taxable
years after the most recent taxable
year for which there was a final
determination that the taxpayer's claim
of credit under this section was due to fraud, and
``(ii) the period of 2 taxable
years after the most recent taxable
year for which there was a final
determination that the taxpayer's claim
of credit under this section was due to
reckless or intentional disregard of
rules and regulations (but not due to
fraud).
``(2) Taxpayers making improper prior claims.--In
the case of a taxpayer who is denied credit under this
section for any taxable year as a result of the
deficiency procedures under subchapter B of chapter 63,
no credit shall be allowed under this section for any
subsequent taxable year unless the taxpayer provides
such information as the Secretary may require to
demonstrate eligibility for such credit.''.
(2) Due diligence requirement on income tax return
preparers.--Section 6695 is amended by adding at the
end the following new subsection:
``(g) Failure To Be Diligent in Determining Eligibility for
Earned Income Credit.--Any person who is an income tax return
preparer with respect to any return or claim for refund who
fails to comply with due diligence requirements imposed by the
Secretary by regulations with respect to determining
eligibility for, or the amount of, the credit allowable by
section 32 shall pay a penalty of $100 for each such
failure.''.
(3) Extension procedures applicable to mathematical
or clerical errors.--Paragraph (2) of section 6213(g)
(relating to the definition of mathematical or clerical
errors) is amended by striking ``and'' at the end of
subparagraph (H), by striking the period at the end of
subparagraph (I) and inserting ``, and'', and by
inserting after subparagraph (I) the following new
subparagraph:
``(J) an omission of information required
by section 32(k)(2) (relating to taxpayers
making improper prior claims of earned income
credit).''.
(b) Increase in Net Loss Disregarded for Modified Adjusted
Gross Income.--Section 32(c)(5)(B)(iv) is amended by striking
``50 percent'' and inserting ``75 percent''.
(c) Workfare Payments Not Included in Earned Income.--
Section 32(c)(2)(B) is amended by striking ``and'' at the end
of clause (iii), by striking the period at the end of clause
(iv) and inserting ``, and'', and by adding at the end the
following new clause:
``(v) no amount described in
subparagraph (A) received for service
performed in work activities as defined
in section 407(d) of the Social
Security Act to which the taxpayer is
assigned under any State program under
part A of title IV of such Act, but
only to the extent such amount is
subsidized under such State program.''.
(d) Certain Nontaxable Income Included in Modified Adjusted
Gross Income.--Section 32(c)(5)(B) is amended--
(1) by striking ``and'' at the end of clause (iii),
(2) by striking the period at the end of clause
(iv)(III),
(3) by inserting after clause (iv)(III) the
following new clauses:
``(v) interest received or accrued
during the taxable year which is exempt
from tax imposed by this chapter, and
``(vi) amounts received as a
pension or annuity, and any
distributions or payments received from
an individual retirement plan, by the
taxpayer during the taxableyear to the
extent not included in gross income.'', and
(4) by adding at the end the following new
sentence: ``Clause (vi) shall not include any amount
which is not includible in gross income by reason of
section 402(c), 403(a)(4), 403(b), 408(d) (3), (4), or
(5), or 457(e)(10).''.
(e) Effective Dates.--
(1) The amendments made by subsection (a) shall
apply to taxable years beginning after December 31,
1996.
(2) The amendments made by subsections (b), (c),
and (d) shall apply to taxable years beginning after
December 31, 1997.
SEC. 1086. LIMITATION ON PROPERTY FOR WHICH INCOME FORECAST METHOD MAY
BE USED.
(a) Limitation.--Subsection (g) of section 167 is amended
by adding at the end the following new paragraph:
``(6) Limitation on property for which income
forecast method may be used.--The depreciation
deduction allowable under this section may be
determined under the income forecast method or any
similar method only with respect to--
``(A) property described in paragraph (3)
or (4) of section 168(f),
``(B) copyrights,
``(C) books,
``(D) patents, and
``(E) other property specified in
regulations.
Such methods may not be used with respect to any
amortizable section 197 intangible (as defined in
section 197(c)).''.
(b) Depreciation Period for Rent-To-Own Property.--
(1) In general.--Subparagraph (A) of section
168(e)(3) (relating to 3-year property) is amended by
striking ``and'' at the end of clause (i), by striking
the period at the end of clause (ii) and inserting ``,
and'', and by adding at the end the following new
clause:
``(iii) any qualified rent-to-own
property.''.
(2) 4-year class life.--The table contained in
section 168(g)(3)(B) is amended by inserting before the
first item the following new item:
``(A)(iii)............................................ 4 ''.
(3) Definition of qualified rent-to-own property.--
Subsection (i) of section 168 is amended by adding at
the end the following new paragraph:
``(14) Qualified rent-to-own property.--
``(A) In general.--The term `qualified
rent-to-own property' means property held by a
rent-to-own dealer for purposes of being
subject to a rent-to-own contract.
``(B) Rent-to-own dealer.--The term `rent-
to-own dealer' means a person that, in the
ordinary course of business, regularly enters
into rent-to-own contracts with customers for
the use of consumer property, if a substantial
portion of those contracts terminate and the
property is returned to such person before the
receipt of all payments required to transfer
ownership of the property from such person to
the customer.
``(C) Consumer property.--The term
`consumer property' means tangible personal
property of a type generally used within the
home for personal use.
``(D) Rent-to-own contract.--The term
`rent-to-own contract' means any lease for the
use of consumer property between a rent-to-own
dealer and a customer who is an individual which--
``(i) is titled `Rent-to-Own
Agreement' or `Lease Agreement with
Ownership Option,' or uses other
similar language,
``(ii) provides for level (or
decreasing where no payment is less
than 40 percent of the largest
payment), regular periodic payments
(for a payment period which is a week
or month),
``(iii) provides that legal title
to such property remains with the rent-
to-own dealer until the customer makes
all the payments described in clause
(ii) or early purchase payments
required under the contract to acquire
legal title to the item of property,
``(iv) provides a beginning date
and a maximum period of time for which
the contract may be in effect that does
not exceed 156 weeks or 36 months from
such beginning date (including renewals
or options to extend),
``(v) provides for payments within
the 156-week or 36-month period that,
in the aggregate, generally exceed the
normal retail price of the consumer
property plus interest,
``(vi) provides for payments under
the contract that, in the aggregate, do
not exceed $10,000 per item of consumer
property,
``(vii) provides that the customer
does not have any legal obligation to
make all the payments referred to in
clause (ii) set forth under the
contract, and that at the end of each
payment period the customer may either
continue to use the consumer property
by making the payment for the next
payment period or return such property
to the rent-to-own dealer in good
working order, in which case the
customer does not incur any further
obligations under the contract and is
not entitled to a return of any
payments previously made under the
contract, and
``(viii) provides that the customer
has no right to sell, sublease,
mortgage, pawn, pledge, encumber, or
otherwise dispose of the consumer
property until all the payments stated
in the contract have been made.''.
(c) Effective Date.--The amendment made by this section
shall apply to property placed in service after the date of the
enactment of this Act.
SEC. 1087. EXPANSION OF REQUIREMENT THAT INVOLUNTARILY CONVERTED
PROPERTY BE REPLACED WITH PROPERTY ACQUIRED FROM AN
UNRELATED PERSON.
(a) In General.--Subsection (i) of section 1033 is amended
to read as follows:
``(i) Replacement Property Must Be Acquired From Unrelated
Person in Certain Cases.--
``(1) In general.--If the property which is
involuntarily converted is held by a taxpayer to which
this subsection applies, subsection (a) shall not apply
if the replacement property or stock is acquired from a
related person. The preceding sentence shall not apply
to the extent that the related person acquired the
replacement property or stock from an unrelated person
during the period applicable under subsection
(a)(2)(B).
``(2) Taxpayers to which subsection applies.--This
subsection shall apply to--
``(A) a C corporation,
``(B) a partnership in which 1 or more C
corporations own, directly or indirectly
(determined in accordance with section
707(b)(3)), more than 50 percent of the capital
interest, or profits interest, in such
partnership at the time of the involuntary
conversion, and
``(C) any other taxpayer if, with respect
to property which is involuntarily converted
during the taxable year, the aggregate of the
amount of realized gain on such property on
which there is realized gain exceeds $100,000.
In the case of a partnership, subparagraph (C) shall
apply with respect to the partnership and with respect
to each partner. A similar rule shall apply in the case
of an S corporation and its shareholders.
``(3) Related person.--For purposes of this
subsection, a person is related to another person if
the person bears a relationship to the other person
described in section 267(b) or 707(b)(1).''.
(b) Effective Date.--The amendment made by this section
shall apply to involuntary conversions occurring after June 8,
1997.
SEC. 1088. TREATMENT OF EXCEPTION FROM INSTALLMENT SALES RULES FOR
SALES OF PROPERTY BY A MANUFACTURER TO A DEALER.
(a) In General.--Paragraph (2) of section 811(c) of the Tax
Reform Act of 1986 is hereby repealed.
(b) Effective Date.--
(1) In general.--The amendment made by this section
shall apply to taxable years beginning more than 1 year
after the date of the enactment of this Act.
(2) Coordination with section 481.--In the case of
any taxpayer required by this section to change its
method of accounting for any taxable year--
(A) such changes shall be treated as
initiated by the taxpayer,
(B) such changes shall be treated as made
with the consent of the Secretary of the
Treasury, and
(C) the net amount of the adjustments
required to be taken into account under section
481(a) of the Internal Revenue Code of 1986
shall be taken into account ratably over the 4
taxable year period beginning with the first
taxable year beginning after the date of the
enactment of this Act.
SEC. 1089. LIMITATIONS ON CHARITABLE REMAINDER TRUST ELIGIBILITY FOR
CERTAIN TRUSTS.
(a) Limitation on Noncharitable Distributions.--
(1) In general.--Paragraphs (1)(A) and (2)(A) of
section 664(d) (relating to charitable remainder
trusts) are each amended by inserting ``nor more than
50 percent'' after ``not less than 5 percent''.
(2) Effective date.--The amendment made by
paragraph (1) shall apply to transfers in trust after
June 18, 1997.
(b) Minimum Charitable Benefit.--
(1) Charitable remainder annuity trusts.--Paragraph
(1) of section 664(d) is amended by striking ``and'' at
the end of subparagraph (B), by striking the period at
the end of subparagraph (C), and by adding at the end
the following new subparagraph:
``(D) the value (determined under section
7520) of such remainder interest is at least 10
percent of the initial net fair market value of
all property placed in the trust.''
(2) Charitable remainder unitrusts.--Paragraph (2)
of section 664(d) is amended by striking ``and'' at the
end of subparagraph (B), by striking the period at the
end of subparagraph (C), and by adding at the end the
following new subparagraph:
``(D) with respect to each contribution of
property to the trust, the value (determined
under section 7520) of such remainder interest
in such property is at least 10 percent of the
net fair market value of such property as of
the date such property is contributed to the
trust.''.
(3) Void or reformed trust.--Paragraph (3) of
section 2055(e) is amended by adding at the end the
following new subparagraph:
``(J) Void or reformed trust in cases of
insufficient remainder interests.--In the case
of a trust that would qualify (or could be
reformed to qualify pursuant to subparagraph
(B)) but for failure to satisfy the requirement
of paragraph (1)(D) or (2)(D) of section
664(d), such trust may be--
``(i) declared null and void ab
initio, or
``(ii) changed by reformation,
amendment, or otherwise to meet such
requirement by reducing the payout rate
or the duration (or both) of any
noncharitable beneficiary's interest to
the extent necessary to satisfy such
requirement,
pursuant to a proceeding that is commenced
within the period required in subparagraph
(C)(iii). In a case described in clause (i), no
deduction shall be allowed under this title for
any transfer to the trust and any transactions
entered into by the trust prior to being
declared void shall be treated as entered into
by the transferor.''
(4) Severance of certain additional
contributions.--Subsection (d) of section 664
is amended by adding at the end the following
new paragraph:
``(4) Severance of certain additional
contributions.--If--
``(A) any contribution is made to a trust
which before the contribution is a charitable
remainder unitrust, and
``(B) such contribution would (but for this
paragraph) result in such trust ceasing to be a
charitable unitrust by reason of paragraph
(2)(D), such contribution shall be treated as a
transfer to a separate trust under regulations prescribed by the
Secretary.''
(5) Conforming amendment.--Section 2055(e)(3)(G) is
amended by inserting ``(or other proceeding pursuant to
subparagraph (J)'' after ``reformation''.
(6) Effective dates.--
(A) In general.--Except as otherwise
provided in this paragraph, the amendments made
by this subsection shall apply to transfers in
trust after July 28, 1997.
(B) Special rule for certain decedents.--
The amendments made by this subsection shall
not apply to transfers in trust under the terms
of a will (or other testamentary instrument)
executed on or before July 28, 1997, if the
decedent--
(i) dies before January 1, 1999,
without having republished the will (or
amended such instrument) by codicil or
otherwise, or
(ii) was on July 28, 1997, under a
mental disability to change the
disposition of his property and did not
regain his competence to dispose of
such property before the date of his
death.
SEC. 1090. EXPANDED SSA RECORDS FOR TAX ENFORCEMENT.
(a) Expansion of Coordinated Enforcement Efforts of IRS and
HHS Office of Child Support Enforcement.--
(1) State reporting of ssn of child.--Section
454A(e)(4)(D) of the Social Security Act (42 U.S.C.
654a(e)(4)(D)) is amended by striking ``the birth date
of any child'' and inserting ``the birth date and,
beginning not later than October 1, 1999, the social
security number, of any child''.
(2) Federal case registry of child support
orders.--Section 453(h) of such Act (42 U.S.C. 653(h))
is amended--
(A) in paragraph (2), by adding at the end
the following: ``Beginning not later than
October 1, 1999, the information referred to in
paragraph (1) shall include the names and
social security numbers of the children of such
individuals.''; and
(B) by adding at the end the following:
``(3) Administration of federal tax laws.--The
Secretary of the Treasury shall have access to the
information described in paragraph (2) for the purpose
of administering those sections of the Internal Revenue
Code of 1986 which grant tax benefits based on support
or residence of children.''.
(3) Coordination between secretaries.--The
Secretary of the Treasury and the Secretary of Health
and Human Services shall consult regarding the
implementation issues resulting from the amendments
made by this subsection, including interim deadlines
for States that may be able before October 1, 1999, to
provide the data required by such amendments. The
Secretaries shall report to Congress on the results of
such consultation.
(4) Effective date.--The amendments made by this
subsection shall take effect on October 1, 1998.
(b) Required Submission of SSN's on Applications.--
(1) In general.--Section 205(c)(2) of the Social
Security Act (42 U.S.C. 405(c)(2)) is amended--
(A) in subparagraph (B)(ii), by adding at
the end the following new sentence: ``With
respect to an application for a social security
account number for an individual who has not
attainedthe age of 18 before such application,
such evidence shall include the information described in subparagraph
(C)(ii).'',
(B) in the second sentence of subparagraph
(C)(ii), insert ``the Commissioner of Social
Security and'' after ``available to'', and
(C) by adding at the end the following new
subparagraph:
``(H) The Commissioner of Social Security shall share with
the Secretary of the Treasury the information obtained by the
Commissioner pursuant to the second sentence of subparagraph
(B)(ii) and to subparagraph (C)(ii) for the purpose of
administering those sections of the Internal Revenue Code of
1986 which grant tax benefits based on support or residence of
children.''.
(2) Effective dates.--
(A) The amendment made by paragraph (1)(A)
shall apply to applications made after the date
which is 180 days after the date of the
enactment of this Act.
(B) The amendments made by subparagraphs
(B) and (C) of paragraph (1) shall apply to
information obtained on, before, or after the
date of the enactment of this Act.
SEC. 1091. MODIFICATION OF ESTIMATED TAX SAFE HARBORS.
(a) In General.--Clause (i) of section 6654(d)(1)(C)
(relating to limitation on use of preceding year's tax) is
amended to read as follows:
``(i) In general.--If the adjusted
gross income shown on the return of the
individual for the preceding taxable
year beginning in any calendar year
exceeds $150,000, clause (ii) of
subparagraph (B) shall be applied by
substituting the applicable percentage
for `100 percent'. For purposes of the
preceding sentence, the applicable
percentage shall be determined in
accordance with the following table:
``If the preceding tax- The applicable
able year begins in: percentage is:
1998, 1999, or 2000....................................... 105
2001...................................................... 112
2002 or thereafter........................................ 110.
This clause shall not apply in the case
of a preceding taxable year beginning
in calendar year 1997.''.
(b) Effective Date.--The amendment made by this section
shall apply with respect to any installment payment for taxable
years beginning after December 31, 1997.
TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS
Subtitle A--General Provisions
SEC. 1101. CERTAIN INDIVIDUALS EXEMPT FROM FOREIGN TAX CREDIT
LIMITATION.
(a) General Rule.--Section 904 (relating to limitations on
foreign tax credit) is amended by redesignating subsection (j)
as subsection (k) and by inserting after subsection (i) the
following new subsection:
``(j) Certain Individuals Exempt.--
``(1) In general.--In the case of an individual to
whom this subsection applies for any taxable year--
``(A) the limitation of subsection (a)
shall not apply,
``(B) no taxes paid or accrued by the
individual during such taxable year may be
deemed paid or accrued under subsection (c) in
any other taxable year, and
``(C) no taxes paid or accrued by the
individual during any other taxable year may be
deemed paid or accrued under subsection (c) in
such taxable year.
``(2) Individuals to whom subsection applies.--This
subsection shall apply to an individual for any taxable
year if--
``(A) the entire amount of such
individual's gross income for the taxable year
from sources without the United States consists
of qualified passive income,
``(B) the amount of the creditable foreign
taxes paid or accrued by the individual during
the taxable year does not exceed $300 ($600 in
the case of a joint return), and
``(C) such individual elects to have this
subsection apply for the taxable year.
``(3) Definitions.--For purposes of this
subsection--
``(A) Qualified passive income.--The term
`qualified passive income' means any item of
gross income if--
``(i) such item of income is
passive income (as defined in
subsection (d)(2)(A) without regard to
clause (iii) thereof), and
``(ii) such item of income is shown
on a payee statement furnished to the
individual.
``(B) Creditable foreign taxes.--The term
`creditable foreign taxes' means any taxes for
which a credit is allowable under section 901;
except that such term shall not include any tax
unless such tax is shown on a payee statement
furnished to such individual.
``(C) Payee statement.--The term `payee
statement' has the meaning given to such term
by section 6724(d)(2).
``(D) Estates and trusts not eligible.--
This subsection shall not apply to any estate
or trust.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1997.
SEC. 1102. EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES.
(a) Accrued Taxes Translated by Using Average Rate for Year
to Which Taxes Relate.--
(1) In general.--Subsection (a) of section 986
(relating to translation of foreign taxes) is amended
to read as follows:
``(a) Foreign Income Taxes.--
``(1) Translation of accrued taxes.--
``(A) In general.--For purposes of
determining the amount of the foreign tax
credit, in the case of a taxpayer who takes
foreign income taxes into account when accrued,
the amount of any foreign income taxes (and any
adjustment thereto) shall be translated into
dollars by using the average exchange rate for
the taxable year to which such taxes relate.
``(B) Exception for certain taxes.--
Subparagraph (A) shall not apply to any foreign
income taxes--
``(i) paid after the date 2 years
after the close of the taxable year to
which such taxes relate, or
``(ii) paid before the beginning of
the taxable year to which such taxes
relate.
``(C) Exception for inflationary
currencies.--Subparagraph (A) shall not apply
to any foreign income taxes the liability for
which is denominated in any inflationary
currency (as determined under regulations).
``(D) Cross reference.--
``For adjustments where tax is not paid within 2 years, see
section 905(c).
``(2) Translation of taxes to which paragraph (1)
does not apply.--For purposes of determiningto the
amount of the foreign tax credit, in the case of any foreign income
taxes to which subparagraph (A) of paragraph (1) does not apply--
``(A) such taxes shall be translated into
dollars using the exchange rates as of the time
such taxes were paid to the foreign country or
possession of the United States, and
``(B) any adjustment to the amount of such
taxes shall be translated into dollars using--
``(i) except as provided in clause
(ii), the exchange rate as of the time
when such adjustment is paid to the
foreign country or possession, or
``(ii) in the case of any refund or
credit of foreign income taxes, using
the exchange rate as of the time of the
original payment of such foreign income
taxes.
``(3) Foreign income taxes.--For purposes of this
subsection, the term `foreign income taxes' means any
income, war profits, or excess profits taxes paid or
accrued to any foreign country or to any possession of
the United States.''.
(2) Adjustment when not paid within 2 years after
year to which taxes relate.--Subsection (c) of section
905 is amended to read as follows:
``(c) Adjustments to Accrued Taxes.--
``(1) In general.--If--
``(A) accrued taxes when paid differ from
the amounts claimed as credits by the taxpayer,
``(B) accrued taxes are not paid before the
date 2 years after the close of the taxable
year to which such taxes relate, or
``(C) any tax paid is refunded in whole or
in part,
the taxpayer shall notify the Secretary, who shall
redetermine the amount of the tax for the year or years
affected. The Secretary may prescribe adjustments to
the pools of post-1986 foreign income taxes and the
pools of post-1986 undistributed earnings under
sections 902 and 960 in lieu of the redetermination
under the preceding sentence.
``(2) Special rule for taxes not paid within 2
years.--
``(A) In general.--Except as provided in
subparagraph (B), in making the redetermination
under paragraph (1), no credit shall be allowed
for accrued taxes not paid before the
datereferred to in subparagraph (B) of paragraph (1).
``(B) Taxes subsequently paid.--Any such
taxes if subsequently paid--
``(i) shall be taken into account--
``(I) in the case of taxes
deemed paid under section 902
or section 960, for the taxable
year in which paid (and no
redetermination shall be made
under this section by reason of
such payment), and
``(II) in any other case,
for the taxable year to which
such taxes relate, and
``(ii) shall be translated as
provided in section 986(a)(2)(A).
``(3) Adjustments.--The amount of tax (if any) due
on any redetermination under paragraph (1) shall be
paid by the taxpayer on notice and demand by the
Secretary, and the amount of tax overpaid (if any)
shall be credited or refunded to the taxpayer in
accordance with subchapter B of chapter 66 (section
6511 et seq.).
``(4) Bond requirements.--In the case of any tax
accrued but not paid, the Secretary, as a condition
precedent to the allowance of the credit provided in
this subpart, may require the taxpayer to give a bond,
with sureties satisfactory to and approved by the
Secretary, in such sum as the Secretary may require,
conditioned on the payment by the taxpayer of any
amount of tax found due on any such redetermination.
Any such bond shall contain such further conditions as
the Secretary may require.
``(5) Other special rules.--In any redetermination
under paragraph (1) by the Secretary of the amount of
tax due from the taxpayer for the year or years
affected by a refund, the amount of the taxes refunded
for which credit has been allowed under this section
shall be reduced by the amount of any tax described in
section 901 imposed by the foreign country or
possession of the United States with respect to such
refund; but no credit under this subpart, or deduction
under section 164, shall be allowed for any taxable
year with respect to any such tax imposed on the
refund. No interest shall be assessed or collected on
any amount of tax due on any redetermination by the
Secretary, resulting from a refund to the taxpayer, for
any period before the receipt of such refund, except to
the extent interest was paid by the foreign country or
possession of the United States on such refund for such
period.''.
(b) Authority To Use Average Rates.--
(1) In general.--Subsection (a) of section 986 (as
amended by subsection (a)) is amended by redesignating
paragraph (3) as paragraph (4) and inserting after
paragraph (2) the following new paragraph:
``(3) Authority to permit use of average rates.--To
the extent prescribed in regulations, the average
exchange rate for the period (specified in such
regulations) during which the taxes or adjustment is
paid may be used instead of the exchange rate as of the
time of such payment.''.
(2) Determination of average rates.--Subsection (c)
of section 989 is amended by striking ``and'' at the
end of paragraph (4), by striking the period at the end
of paragraph (5) and inserting ``, and'', and by adding
at the end thereof the following new paragraph:
``(6) setting forth procedures for determining the
average exchange rate for any period.''.
(3) Conforming amendments.--Subsection (b) of
section 989 is amended by striking ``weighted'' each
place it appears.
(c) Effective Dates.--
(1) In general.--The amendments made by subsections
(a)(1) and (b) shall apply to taxes paid or accrued in
taxable years beginning after December 31, 1997.
(2) Subsection (a)(2).--The amendment made by
subsection (a)(2) shall apply to taxes which relate to
taxable years beginning after December 31, 1997.
SEC. 1103. ELECTION TO USE SIMPLIFIED SECTION 904 LIMITATION FOR
ALTERNATIVE MINIMUM TAX.
(a) General Rule.--Subsection (a) of section 59 (relating
to alternative minimum tax foreign tax credit) is amended by
adding at the end thereof the following new paragraph:
``(3) Election to use simplified section 904
limitation.--
``(A) In general.--In determining the
alternative minimum tax foreign tax credit for
any taxable year to which an election under
this paragraph applies--
``(i) subparagraph (B) of paragraph
(1) shall not apply, and
``(ii) the limitation of section
904 shall be based on the proportion
which--
``(I) the taxpayer's
taxable income (as determined
for purposes of the regular
tax) from sources without the
United States (but not in
excess of the taxpayer's entire
alternative minimum taxable
income), bears to
``(II) the taxpayer's
entire alternative minimum
taxable income for the taxable
year.
``(B) Election.--
``(i) In general.--An election
under this paragraph may be made only
for the taxpayer's first taxable year
which begins after December 31, 1997,
and for which the taxpayer claims an
alternative minimum tax foreign tax
credit.
``(ii) Election revocable only with
consent.--An election under this
paragraph, once made, shall apply to
the taxable year for which made and all
subsequent taxable years unless revoked
with the consent of the Secretary.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 1104. TREATMENT OF PERSONAL TRANSACTIONS BY INDIVIDUALS UNDER
FOREIGN CURRENCY RULES.
(a) General Rule.--Subsection (e) of section 988 (relating
to application to individuals) is amended to read as follows:
``(e) Application to Individuals.--
``(1) In general.--The preceding provisions of this
section shall not apply to any section 988 transaction
entered into by an individual which is a personal
transaction.
``(2) Exclusion for certain personal
transactions.--If--
``(A) nonfunctional currency is disposed of
by an individual in any transaction, and
``(B) such transaction is a personal
transaction,
no gain shall be recognized for purposes of this
subtitle by reason of changes in exchange rates after
such currency was acquired by such individual and
before such disposition. The preceding sentence shall
not apply if the gain which would otherwise be
recognized on the transaction exceeds $200.
``(3) Personal transactions.--For purposes of this
subsection, the term `personal transaction' means any
transaction entered into by an individual, except that
such term shall not include any transaction to the
extent that expenses properly allocable to such
transaction meet the requirements of--
``(A) section 162 (other than traveling
expenses described in subsection (a)(2)
thereof), or
``(B) section 212 (other than that part of
section 212 dealing with expenses incurred in
connection with taxes).''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 1105. FOREIGN TAX CREDIT TREATMENT OF DIVIDENDS FROM NONCONTROLLED
SECTION 902 CORPORATIONS.
(a) Separate Basket Only To Apply to Pre-2003 Earnings.--
(1) In general.--Subparagraph (E) of section
904(d)(1) is amended to read as follows:
``(E) in the case of a corporation,
dividends from noncontrolled section 902
corporations out of earnings and profits
accumulated in taxable years beginning before
January 1, 2003,''.
(2) Aggregation of non-pfics.--Subparagraph (E) of
section 904(d)(2) (relating to noncontrolled section
902 corporations) is amended by adding at the end the
following new clause:
``(iv) All non-pfics treated as
one.--All noncontrolled section 902
corporations which are not passive
foreign investment companies (as
defined in section 1297) shall be
treated as one noncontrolled section
902 corporation for purposes of
paragraph (1).''.
(3) Conforming amendments.--Subparagraphs
(C)(iii)(II) and (D) of section 904(d)(2) are each
amended by inserting ``out of earnings and profits
accumulated in taxable years beginning before January
1, 2003'' after ``corporation''.
(b) Application of Look-Thru Rules to Dividends of
Noncontrolled Section 902 Corporations Attributable to Post-
2002 Earnings.--Section 904(d) is amended by redesignating
paragraphs (4) and (5) as paragraphs (5) and (6), respectively,
and by inserting after paragraph (3) the following new
paragraph:
``(4) Look-thru applies to dividends from
noncontrolled section 902 corporations.--
``(A) In general.--For purposes of this
subsection, any applicable dividend shall be
treated as income in a separate category in
proportion to the ratio of--
``(i) the portion of the earnings
and profits described in subparagraph
(B)(ii) attributable to income in such
category, to
``(ii) the total amount of such
earnings and profits.
``(B) Applicable dividend.--For purposes of
subparagraph (A), the term `applicable
dividend' means any dividend--
``(i) from a noncontrolled section
902 corporation with respect to the
taxpayer, and
``(ii) paid out of earnings and
profits accumulated in taxable years
beginning after December 31, 2002.
``(C) Special rules.--
``(i) In general.--Rules similar to
the rules of paragraph (3)(F) shall
apply for purposes of this paragraph.
``(ii) Earnings and profits.--For
purposes of this paragraph and
paragraph (1)(E)--
``(I) In general.--The
rules of section 316 shall
apply.
``(II) Regulations.--The
Secretary may prescribe
regulations regarding the
treatment of distributions out
of earnings and profits for
periods prior to the taxpayer's
acquisition of such stock.''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 2002.
Subtitle B--Treatment of Controlled Foreign Corporations
SEC. 1111. GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN
CORPORATIONS TREATED AS DIVIDENDS.
(a) General Rule.--Section 964 (relating to miscellaneous
provisions) is amended by adding at the end thereof the
following new subsection:
``(e) Gain on Certain Stock Sales by Controlled Foreign
Corporations Treated as Dividends.--
``(1) In general.--If a controlled foreign
corporation sells or exchanges stock in any other
foreign corporation, gain recognized on such sale or
exchange shall be included in the gross income of such
controlled foreign corporation as a dividend to the
same extent that it would have been so included under
section 1248(a) if such controlled foreign corporation
were a United States person. For purposes of
determining the amount which would have been so
includible, the determination of whether such other
foreign corporation was a controlled foreign
corporation shall be made without regard to the
preceding sentence.
``(2) Same country exception not applicable.--
Clause (i) of section 954(c)(3)(A) shall not apply to
any amount treated as a dividend by reason of paragraph
(1).
``(3) Clarification of deemed sales.--For purposes
of this subsection, a controlled foreign corporation
shall be treated as having sold or exchanged any stock
if, under any provision of this subtitle, such
controlled foreign corporation is treated as having
gain from the sale or exchange of such stock.''.
(b) Amendment of Section 904(d).--Clause (i) of section
904(d)(2)(E) is amended by striking ``and except as provided in
regulations, the taxpayer was a United States shareholder in
such corporation''.
(c) Effective Dates.--
(1) The amendment made by subsection (a) shall
apply to gain recognized on transactions occurring
after the date of the enactment of this Act.
(2) The amendment made by subsection (b) shall
apply to distributions after the date of the enactment
of this Act.
SEC. 1112. MISCELLANEOUS MODIFICATIONS TO SUBPART F.
(a) Section 1248 Gain Taken Into Account in Determining Pro
Rata Share.--
(1) In general.--Paragraph (2) of section 951(a)
(defining pro rata share of subpart F income) is
amended by adding at the end thereof the following new
sentence: ``For purposes of subparagraph (B), any gain
included in the gross income of any person as a
dividend under section 1248 shall be treated as a
distribution received by such person with respect to
the stock involved.''.
(2) Effective date.--The amendment made by
paragraph (1) shall apply to dispositions after the
date of the enactment of this Act.
(b) Basis Adjustments in Stock Held by Foreign
Corporation.--
(1) In general.--Section 961 (relating to
adjustments to basis of stock in controlled foreign
corporations and of other property) is amended by
adding at the end thereof the following new subsection:
``(c) Basis Adjustments in Stock Held by Foreign
Corporation.--Under regulations prescribed by the Secretary, if
a United States shareholder is treated under section 958(a)(2)
as owning any stock in a controlled foreign corporation which
is actually owned by another controlled foreign corporation,
adjustments similar to the adjustments provided by subsections
(a) and (b) shall be made to the basis of such stock in the
hands of such other controlled foreign corporation, but only
for the purposes of determining the amount included under
section 951 in the gross income of such United States
shareholder (or any other United States shareholder who
acquires from any person any portion of the interest of such
United States shareholder by reason of which such shareholder
was treated as owning such stock, but only to the extent of
such portion, and subject to such proof of identity of such
interest as the Secretary may prescribe by regulations).''.
(2) Effective date.--The amendment made by
paragraph (1) shall apply for purposes of determining
inclusions for taxable years of United States
shareholders beginning after December 31, 1997.
(c) Clarification of Treatment of Branch Tax Exemptions or
Reductions.--
(1) In general.--Subsection (b) of section 952 is
amended by adding at the end thereof the following new
sentence: ``For purposes of this subsection, any
exemption (or reduction) with respect to the tax
imposed by section 884 shall not be taken into
account.''.
(2) Effective date.--The amendment made by
paragraph (1) shall apply to taxable years beginning
after December 31, 1986.
SEC. 1113. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN LOWER TIER
COMPANIES.
(a) Section 902 Credit.--
(1) In general.--Subsection (b) of section 902
(relating to deemed taxes increased in case of certain
2nd and 3rd tier foreign corporations) is amended to
read as follows:
``(b) Deemed Taxes Increased in Case of Certain Lower Tier
Corporations.--
``(1) In general.--If--
``(A) any foreign corporation is a member
of a qualified group, and
``(B) such foreign corporation owns 10
percent or more of the voting stock of another
member of such group from which it receives
dividends in any taxable year,
such foreign corporation shall be deemed to have paid
the same proportion of such other member's post-1986
foreign income taxes as would be determined under
subsection (a) if such foreign corporation were a
domestic corporation.
``(2) Qualified group.--For purposes of paragraph
(1), the term `qualified group' means--
``(A) the foreign corporation described in
subsection (a), and
``(B) any other foreign corporation if--
``(i) the domestic corporation owns
at least 5 percent of the voting stock
of such other foreign corporation
indirectly through a chain of foreign
corporations connected through stock
ownership of at least 10 percent of
their voting stock,
``(ii) the foreign corporation
described in subsection (a) is the
first tier corporation in such chain,
and
``(iii) such other corporation is
not below the sixth tier in such chain.
The term `qualified group' shall not include any
foreign corporation below the third tier in the chain
referred to in clause (i) unless such foreign
corporation is a controlled foreign corporation (as
defined in section 957) and the domestic corporation is
a United States shareholder (as defined in section
951(b)) in such foreign corporation. Paragraph (1)
shall apply to those taxes paid by a member of the
qualified group below the third tier only with respect
to periods during which it was a controlled foreign
corporation.''.
(2) Conforming amendments.--
(A) Subparagraph (B) of section 902(c)(3)
is amended by adding ``or'' at the end of
clause (i) and by striking clauses (ii) and
(iii) and inserting the following new clause:
``(ii) the requirements of
subsection (b)(2) are met with respect
to such foreign corporation.''.
(B) Subparagraph (B) of section 902(c)(4)
is amended by striking ``3rd foreign
corporation'' and inserting ``sixth tier
foreign corporation''.
(C) The heading for paragraph (3) of
section 902(c) is amended by striking ``where
domestic corporation acquires 10 percent of
foreign corporation'' and inserting ``where
foreign corporation first qualifies''.
(D) Paragraph (3) of section 902(c) is
amended by striking ``ownership'' each place it
appears.
(b) Section 960 Credit.--Paragraph (1) of section 960(a)
(relating to special rules for foreign tax credits) is amended
to read as follows:
``(1) Deemed paid credit.--For purposes of subpart
A of this part, if there is included under section
951(a) in the gross income of a domestic corporation
any amount attributable to earnings and profits of a
foreign corporation which is a member of a qualified
group (as defined in section 902(b)) with respect to
the domestic corporation, then, except to the extent
provided in regulations, section 902 shall be applied
as if the amount so included were a dividend paid by
such foreign corporation (determined by applying
section 902(c) in accordance with section
904(d)(3)(B)).''.
(c) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to taxes of foreign corporationsfor
taxable years of such corporations beginning after the date of
enactment of this Act.
(2) Special rule.--In the case of any chain of
foreign corporations described in clauses (i) and (ii)
of section 902(b)(2)(B) of the Internal Revenue Code of
1986 (as amended by this section), no liquidation,
reorganization, or similar transaction in a taxable
year beginning after the date of the enactment of this
Act shall have the effect of permitting taxes to be
taken into account under section 902 of the Internal
Revenue Code of 1986 which could not have been taken
into account under such section but for such
transaction.
Subtitle C--Treatment of Passive Foreign Investment Companies
SEC. 1121. UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN
CORPORATIONS NOT SUBJECT TO PFIC INCLUSION.
Section 1296 is amended by adding at the end the following
new subsection:
``(e) Exception for United States Shareholders of
Controlled Foreign Corporations.--
``(1) In general.--For purposes of this part, a
corporation shall not be treated with respect to a
shareholder as a passive foreign investment company
during the qualified portion of such shareholder's
holding period with respect to stock in such
corporation.
``(2) Qualified portion.--For purposes of this
subsection, the term `qualified portion' means the
portion of the shareholder's holding period--
``(A) which is after December 31, 1997, and
``(B) during which the shareholder is a
United States shareholder (as defined in
section 951(b)) of the corporation and the
corporation is a controlled foreign
corporation.
``(3) New holding period if qualified portion
ends.--
``(A) In general.--Except as provided in
subparagraph (B), if the qualified portion of a
shareholder's holding period with respect to
any stock ends after December 31, 1997, solely
for purposes of this part, the shareholder's
holding period with respect to such stock shall
be treated as beginning as of the first day
following such period.
``(B) Exception.--Subparagraph (A) shall
not apply if such stock was, with respect to
such shareholder, stock in a passive
foreigninvestment company at any time before the qualified portion of
the shareholder's holding period with respect to such stock and no
election under section 1298(b)(1) is made.''.
SEC. 1122. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK IN PASSIVE
FOREIGN INVESTMENT COMPANY.
(a) In General.--Part VI of subchapter P of chapter 1 is
amended by redesignating subpart C as subpart D, by
redesignating sections 1296 and 1297 as sections 1297 and 1298,
respectively, and by inserting after subpart B the following
new subpart:
``Subpart C--Election of Mark to Market For Marketable Stock
``Sec. 1296. Election of mark to market for marketable stock.
``SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK.
``(a) General Rule.--In the case of marketable stock in a
passive foreign investment company which is owned (or treated
under subsection (g) as owned) by a United States person at the
close of any taxable year of such person, at the election of
such person--
``(1) If the fair market value of such stock as of
the close of such taxable year exceeds its adjusted
basis, such United States person shall include in gross
income for such taxable year an amount equal to the
amount of such excess.
``(2) If the adjusted basis of such stock exceeds
the fair market value of such stock as of the close of
such taxable year, such United States person shall be
allowed a deduction for such taxable year equal to the
lesser of--
``(A) the amount of such excess, or
``(B) the unreversed inclusions with
respect to such stock.
``(b) Basis Adjustments.--
``(1) In general.--The adjusted basis of stock in a
passive foreign investment company--
``(A) shall be increased by the amount
included in the gross income of the United
States person under subsection (a)(1) with
respect to such stock, and
``(B) shall be decreased by the amount
allowed as a deduction to the United States
person under subsection (a)(2) with respect to
such stock.
``(2) Special rule for stock constructively
owned.--In the case of stock in a passive foreign
investment company which the United States person is
treated as owning under subsection (g)--
``(A) the adjustments under paragraph (1)
shall apply to such stock in the hands of the
person actually holding such stock but only for
purposes of determining the subsequent
treatment under this chapter of the United
States person with respect to such stock, and
``(B) similar adjustments shall be made to
the adjusted basis of the property by reason of
which the United States person is treated as
owning such stock.
``(c) Character and Source Rules.--
``(1) Ordinary treatment.--
``(A) Gain.--Any amount included in gross
income under subsection (a)(1), and any gain on
the sale or other disposition of marketable
stock in a passive foreign investment company
(with respect to which an election under this
section is in effect), shall be treated as
ordinary income.
``(B) Loss.--Any--
``(i) amount allowed as a deduction
under subsection (a)(2), and
``(ii) loss on the sale or other
disposition of marketable stock in a
passive foreign investment company
(with respect towhich an election under
this section is in effect) to the extent that the amount of such loss
does not exceed the unreversed inclusions with respect to such stock,
shall be treated as an ordinary loss. The
amount so treated shall be treated as a
deduction allowable in computing adjusted gross
income.
``(2) Source.--The source of any amount included in
gross income under subsection (a)(1) (or allowed as a
deduction under subsection (a)(2)) shall be determined
in the same manner as if such amount were gain or loss
(as the case may be) from the sale of stock in the
passive foreign investment company.
``(d) Unreversed Inclusions.--For purposes of this section,
the term `unreversed inclusions' means, with respect to any
stock in a passive foreign investment company, the excess (if
any) of--
``(1) the amount included in gross income of the
taxpayer under subsection (a)(1) with respect to such
stock for prior taxable years, over
``(2) the amount allowed as a deduction under
subsection (a)(2) with respect to such stock for prior
taxable years.
The amount referred to in paragraph (1) shall include any
amount which would have been included in gross income under
subsection (a)(1) with respect to such stock for any prior
taxable year but for section 1291.
``(e) Marketable Stock.--For purposes of this section--
``(1) In general.--The term `marketable stock'
means--
``(A) any stock which is regularly traded
on--
``(i) a national securities
exchange which is registered with the
Securities and Exchange Commission or
the national market system established
pursuant to section 11A of the
Securities and Exchange Act of 1934, or
``(ii) any exchange or other market
which the Secretary determines has
rules adequate to carry out the
purposes of this part,
``(B) to the extent provided in
regulations, stock in any foreign corporation
which is comparable to a regulated investment
company and which offers for sale or has
outstanding anystock of which it is the issuer
and which is redeemable at its net asset value, and
``(C) to the extent provided in
regulations, any option on stock described in
subparagraph (A) or (B).
``(2) Special rule for regulated investment
companies.--In the case of any regulated investment
company which is offering for sale or has outstanding
any stock of which it is the issuer and which is
redeemable at its net asset value, all stock in a
passive foreign investment company which it owns
directly or indirectly shall be treated as marketable
stock for purposes of this section. Except as provided
in regulations, similar treatment as marketable stock
shall apply in the case of any other regulated
investment company which publishes net asset valuations
at least annually.
``(f) Treatment of Controlled Foreign Corporations Which
are Shareholders in Passive Foreign Investment Companies.--In
the case of a foreign corporation which is a controlled foreign
corporation and which owns (or is treated under subsection (g)
as owning) stock in a passive foreign investment company--
``(1) this section (other than subsection (c)(2))
shall apply to such foreign corporation in the same
manner as if such corporation were a United States
person, and
``(2) for purposes of subpart F of part III of
subchapter N--
``(A) any amount included in gross income
under subsection (a)(1) shall be treated as
foreign personal holding company income
described in section 954(c)(1)(A), and
``(B) any amount allowed as a deduction
under subsection (a)(2) shall be treated as a
deduction allocable to foreign personal holding
company income so described.
``(g) Stock Owned Through Certain Foreign Entities.--Except
as provided in regulations--
``(1) In general.--For purposes of this section,
stock owned, directly or indirectly, by or for a
foreign partnership or foreign trust or foreign estate
shall be considered as being owned proportionately by
its partners or beneficiaries. Stock considered to be
owned by a person by reason of the application of the
preceding sentence shall, for purposes of applying such
sentence, be treated as actually owned by such person.
``(2) Treatment of certain dispositions.--In any
case in which a United States person istreated as
owning stock in a passive foreign investment company by reason of
paragraph (1)--
``(A) any disposition by the United States
person or by any other person which results in
the United States person being treated as no
longer owning such stock, and
``(B) any disposition by the person owning
such stock,
shall be treated as a disposition by the United States
person of the stock in the passive foreign investment
company.
``(h) Coordination With Section 851(b).--For purposes of
paragraphs (2) and (3) of section 851(b), any amount included
in gross income under subsection (a) shall be treated as a
dividend.
``(i) Stock Acquired From a Decedent.--In the case of stock
of a passive foreign investment company which is acquired by
bequest, devise, or inheritance (or by the decedent's estate)
and with respect to which an election under this section was in
effect as of the date of the decedent's death, notwithstanding
section 1014, the basis of such stock in the hands of the
person so acquiring it shall be the adjusted basis of such
stock in the hands of the decedent immediately before his death
(or, if lesser, the basis which would have been determined
under section 1014 without regard to this subsection).
``(j) Coordination With Section 1291 for First Year of
Election.--
``(1) Taxpayers other than regulated investment
companies.--
``(A) In general.--If the taxpayer elects
the application of this section with respect to
any marketable stock in a corporation after the
beginning of the taxpayer's holding period in
such stock, and if the requirements of
subparagraph (B) are not satisfied, section
1291 shall apply to--
``(i) any distributions with
respect to, or disposition of, such
stock in the first taxable year of the
taxpayer for which such election is
made, and
``(ii) any amount which, but for
section 1291, would have been included
in gross income under subsection (a)
with respect to such stock for such
taxable year in the same manner as if
such amount were gain on the
disposition of such stock.
``(B) Requirements.--The requirements of
this subparagraph are met if, with respect
toeach of such corporation's taxable years for which such corporation
was a passive foreign investment company and which begin after December
31, 1986, and included any portion of the taxpayer's holding period in
such stock, such corporation was treated as a qualified electing fund
under this part with respect to the taxpayer.
``(2) Special rules for regulated investment
companies.--
``(A) In general.--If a regulated
investment company elects the application of
this section with respect to any marketable
stock in a corporation after the beginning of
the taxpayer's holding period in such stock,
then, with respect to such company's first
taxable year for which such company elects the
application of this section with respect to
such stock--
``(i) section 1291 shall not apply
to such stock with respect to any
distribution or disposition during, or
amount included in gross income under
this section for, such first taxable
year, but
``(ii) such regulated investment
company's tax under this chapter for
such first taxable year shall be
increased by the aggregate amount of
interest which would have been
determined under section 1291(c)(3) if
section 1291 were applied without
regard to this subparagraph.
Clause (ii) shall not apply if for the
preceding taxable year the company elected to
mark to market the stock held by such company
as of the last day of such preceding taxable
year.
``(B) Disallowance of deduction.--No
deduction shall be allowed to any regulated
investment company for the increase in tax
under subparagraph (A)(ii).
``(k) Election.--This section shall apply to marketable
stock in a passive foreign investment company which is held by
a United States person only if such person elects to apply this
section with respect to such stock. Such an election shall
apply to the taxable year for which made and all subsequent
taxable years unless--
``(1) such stock ceases to be marketable stock, or
``(2) the Secretary consents to the revocation of
such election.
``(l) Transition Rule for Individuals Becoming Subject to
United States Tax.--If any individual becomes a United States
person in a taxable year beginning after December 31, 1997,
solely for purposes of this section, the adjusted basis (before
adjustments under subsection (b)) of any marketable stock in a
passive foreign investment company owned by such individual on
the first day of such taxable year shall be treated as being
the greater of its fair market value on such first day or its
adjusted basis on such first day.''.
(b) Coordination With Interest Charge, Etc.--
(1) Paragraph (1) of section 1291(d) is amended by
adding at the end the following new flush sentence:
``Except as provided in section 1296(j), this section
also shall not apply if an election under section
1296(k) is in effect for the taxpayer's taxable
year.''.
(2) The subsection heading for subsection (d) of
section 1291 is amended by striking ``Subpart B'' and
inserting ``Subparts B and C''.
(3) Subparagraph (A) of section 1291(a)(3) is
amended to read as follows:
``(A) Holding period.--The taxpayer's
holding period shall be determined under
section 1223; except that--
``(i) for purposes of applying this
section to an excess distribution, such
holding period shall be treated as
ending on the date of such
distribution, and
``(ii) if section 1296 applied to
such stock with respect to the taxpayer
for any prior taxable year, such
holding period shall be treated as
beginning on the first day of the first
taxable year beginning after the last
taxable year for which section 1296 so
applied.''.
(c) Treatment of Mark-to-Market Gain Under Section 4982.--
(1) Subsection (e) of section 4982 is amended by
adding at the end thereof the following new paragraph:
``(6) Treatment of gain recognized under section
1296.--For purposes of determining a regulated
investment company's ordinary income--
``(A) notwithstanding paragraph (1)(C),
section 1296 shall be applied as if such
company's taxable year ended on October 31, and
``(B) any ordinary gain or loss from an
actual disposition of stock in a passive
foreign investment company during the portion
of the calendar year after October 31 shall be
taken into account in determining such
regulated investment company's ordinary income
for the following calendar year.
In the case of a company making an election under
paragraph (4), the preceding sentence shall be applied
by substituting the last day of the company's taxable
year for October 31.''.
(2) Subsection (b) of section 852 is amended by
adding at the end thereof the following new paragraph:
``(10) Special rule for certain losses on stock in
passive foreign investment company.--To the extent
provided in regulations, the taxable income of a
regulated investment company (other than a company to
which an election under section 4982(e)(4) applies)
shall be computed without regard to any net reduction
in the value of any stock of a passive foreign
investment company with respect to which an election
under section 1296(k) is in effect occurring after
October 31 of the taxable year, and any such reduction
shall be treated as occurring on the first day of the
following taxable year.''.
(3) Subsection (c) of section 852 is amended by
inserting after ``October 31 of such year'' the
following: ``, without regard to any net reduction in
the value of any stock of a passive foreign investment
company with respect to which an election under section
1296(k) is in effect occurring after October 31 of such
year,''.
(d) Conforming Amendments.--
(1) Sections 532(b)(4) and 542(c)(10) are each
amended by striking ``section 1296'' and inserting
``section 1297''.
(2) Subsection (f) of section 551 is amended by
striking ``section 1297(b)(5)'' and inserting ``section
1298(b)(5)''.
(3) Subsections (a)(1) and (d) of section 1293 are
each amended by striking ``section 1297(a)'' and
inserting ``section 1298(a)''.
(4) Paragraph (3) of section 1297(b), as
redesignated by subsection (a), is hereby repealed.
(5) The table of sections for subpart D of part VI
of subchapter P of chapter 1, as redesignated by
subsection (a), is amended to read as follows:
``Sec. 1297. Passive foreign investment company.
``Sec. 1298. Special rules.''.
(6) The table of subparts for part VI of subchapter
P of chapter 1 is amended by striking the last item and
inserting the following new items:
``Subpart C. Election of mark to market for marketable stock.
``Subpart D. General provisions.''.
(e) Clarification of Gain Recognition Election.--The last
sentence of section 1298(b)(1), as so redesignated, is amended
by inserting ``(determined without regard to the preceding
sentence)'' after ``investment company''.
SEC. 1123. VALUATION OF ASSETS FOR PASSIVE FOREIGN INVESTMENT COMPANY
DETERMINATION.
(a) In General.--Section 1297, as redesignated by section
1122, is amended by adding at the end the following new
subsection:
``(e) Methods for Measuring Assets.--
``(1) Determination using value.--The determination
under subsection (a)(2) shall be made on the basis of
the value of the assets of a foreign corporation if--
``(A) such corporation is a publicly traded
corporation for the taxable year, or
``(B) paragraph (2) does not apply to such
corporation for the taxable year.
``(2) Determination using adjusted bases.--The
determination under subsection (a)(2) shall be based on
the adjusted bases (as determined for the purposes of
computing earnings and profits) of the assets of a
foreign corporation if such corporation is not
described in paragraph (1)(A) and such corporation--
``(A) is a controlled foreign corporation,
or
``(B) elects the application of this
paragraph.
An election under subparagraph (B), once made, may be
revoked only with the consent of the Secretary.
``(3) Publicly traded corporation.--For purposes of
this subsection, a foreign corporation shall be treated
as a publicly traded corporation if the stock in the
corporation is regularly traded on--
``(A) a national securities exchange which
is registered with the Securities and Exchange
Commission or the national market system
established pursuant to section 11A of the
Securities and Exchange Act of 1934, or
``(B) any exchange or other market which
the Secretary determines has rules adequate to
carry out the purposes of this subsection.''
(b) Conforming Amendments.--Section 1297(a), as
redesignated by section 1122, is amended--
(1) by striking ``(by value)'' and inserting ``(as
determined in accordance with subsection (e))'', and
(2) by striking the last two sentences.
SEC. 1124. EFFECTIVE DATE.
The amendments made by this subtitle shall apply to--
(1) taxable years of United States persons
beginning after December 31, 1997, and
(2) taxable years of foreign corporations ending
with or within such taxable years of United States
persons.
Subtitle D--Repeal of Excise Tax on Transfers to Foreign Entities
SEC. 1131. REPEAL OF EXCISE TAX ON TRANSFERS TO FOREIGN ENTITIES;
RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO FOREIGN
TRUSTS AND ESTATES.
(a) Repeal of Excise Tax.--Chapter 5 (relating to transfers
to avoid income tax) is hereby repealed.
(b) Recognition of Gain on Certain Transfers to Foreign
Trusts and Estates.--Subpart F of part I of subchapter J of
chapter 1 is amended by adding at the end the following new
section:
``SEC. 684. RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO CERTAIN FOREIGN
TRUSTS AND ESTATES.
``(a) In General.--Except as provided in regulations, in
the case of any transfer of property by a United States person
to a foreign estate or trust, for purposes of this subtitle,
such transfer shall be treated as a sale or exchange for an
amount equal to the fair market value of the property
transferred, and the transferor shall recognize as gain the
excess of--
``(1) the fair market value of the property so
transferred, over
``(2) the adjusted basis (for purposes of
determining gain) of such property in the hands of the
transferor.
``(b) Exception.--Subsection (a) shall not apply to a
transfer to a trust by a United States person to the extent
that any person is treated as the owner of such trust under
section 671.
``(c) Treatment of Trusts Which Become Foreign Trusts.--If
a trust which is not a foreign trust becomes a foreign trust,
such trust shall be treated for purposes of this section as
having transferred, immediately before becoming a foreign
trust, all of its assets to a foreign trust.''.
(b) Other Anti-Avoidance Provisions Replacing Repealed
Excise Tax.--
(1) Gain recognition on exchanges involving foreign
persons.--Section 1035 is amended by redesignating
subsection (c) as subsection (d) and by inserting after
subsection (b) the following new subsection:
``(c) Exchanges Involving Foreign Persons.--To the extent
provided in regulations, subsection (a) shall not apply to any
exchange having the effect of transferring property to any
person other than a United States person.''.
(2) Transfers to foreign corporations.--Section 367
is amended by adding at the end the following new
subsection:
``(f) Other Transfers.--To the extent provided in
regulations, if a United States person transfers property to a
foreign corporation as paid-in surplus or as a contribution to
capital (in a transaction not otherwise described in this
section), such transfer shall be treated as a sale or exchange
for an amount equal to the fair market value of the property
transferred, and the transferor shall recognize as gain the
excess of--
``(1) the fair market value of the property so
transferred, over
``(2) the adjusted basis (for purposes of
determining gain) of such property in the hands of the
transferor.''.
(3) Certain transfers to partnerships.--Section 721
is amended by adding at the end the following new
subsection:
``(c) Regulations Relating to Certain Transfers to
Partnerships.--The Secretary may provide by regulations that
subsection (a) shall not apply to gain realized on the transfer
of property to a partnership if such gain, when recognized,
will be includible in the gross income of a person other than a
United States person.''.
(4) Repeal of u.s. source treatment of deemed
royalties.--Subparagraph (C) of section 367(d)(2) is
amended to read as follows:
``(C) Amounts received treated as ordinary
income.--For purposes of this chapter, any
amount included in gross income by reason of
this subsection shall be treated as ordinary
income.''.
(5) Transfers of intangibles to partnerships.--
(A) Subsection (d) of section 367 is
amended by adding at the end the following new
paragraph:
``(3) Regulations relating to transfers of
intangibles to partnerships.--The Secretary may provide
by regulations that the rules of paragraph (2) also
apply to the transfer of intangible property by a
United States person to a partnership in circumstances
consistent with the purposes of this subsection.''.
(B) Section 721 is amended by adding at the
end the following new subsection:
``(d) Transfers of Intangibles.--
``For regulatory authority to treat intangibles transferred to
a partnership as sold, see section 367(d)(3).''.
(c) Technical and Conforming Amendments.--
(1) Subsection (h) of section 814 is amended by
striking ``or 1491''.
(2) Section 1057 (relating to election to treat
transfer to foreign trust, etc., as taxable exchange)
is hereby repealed.
(3) Section 6422 is amended by striking paragraph
(5) and by redesignating paragraphs (6) through (13) as
paragraphs (5) through (12), respectively.
(4) The table of chapters for subtitle A is amended
by striking the item relating to chapter 5.
(5) The table of sections for part IV of subchapter
O of chapter 1 is amended by striking the item relating
to section 1057.
(6) The table of sections for subpart F of part I
of subchapter J of chapter 1 is amended by adding at
the end the following new item:
``Sec. 684. Recognition of gain on certain transfers to certain
foreign trusts and estates.''.
(d) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
Subtitle E--Information Reporting
SEC. 1141. CLARIFICATION OF APPLICATION OF RETURN REQUIREMENT TO
FOREIGN PARTNERSHIPS.
(a) In General.--Section 6031 (relating to return of
partnership income) is amended by adding at the end the
following new subsection:
``(e) Foreign Partnerships.--
``(1) Exception for foreign partnership.--Except as
provided in paragraph (2), the preceding provisions of
this section shall not apply to a foreign partnership.
``(2) Certain foreign partnerships required to file
return.--Except as provided in regulations prescribed
by the Secretary, this section shall apply to a foreign
partnership for any taxable year if for such year, such
partnership has--
``(A) gross income derived from sources
within the United States, or
``(B) gross income which is effectively
connected with the conduct of a trade or
business within the United States.
The Secretary may provide simplified filing procedures
for foreign partnerships to which this section
applies.''.
(b) Sanction for Failure by Foreign Partnership To Comply
With Section 6031 To Include Denial of Deductions.--Subsection
(f) of section 6231 is amended--
(1) by striking ``Losses and'' in the heading and
inserting ``Deductions, Losses, and'', and
(2) by striking ``loss or'' each place it appears
and inserting ``deduction, loss, or''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 1142. CONTROLLED FOREIGN PARTNERSHIPS SUBJECT TO INFORMATION
REPORTING COMPARABLE TO INFORMATION REPORTING FOR
CONTROLLED FOREIGN CORPORATIONS.
(a) In General.--So much of section 6038 (relating to
information with respect to certain foreign corporations) as
precedes paragraph (2) of subsection (a) is amended to read as
follows:
``SEC. 6038. INFORMATION REPORTING WITH RESPECT TO CERTAIN FOREIGN
CORPORATIONS AND PARTNERSHIPS.
``(a) Requirement.--
``(1) In general.--Every United States person shall
furnish, with respect to any foreign business entity
which such person controls, such information as the
Secretary may prescribe relating to--
``(A) the name, the principal place of
business, and the nature of business of such
entity, and the country under whose laws such
entity is incorporated (or organized in the
case of a partnership);
``(B) in the case of a foreign corporation,
its post-1986 undistributed earnings (as
defined in section 902(c));
``(C) a balance sheet for such entity
listing assets, liabilities, and capital;
``(D) transactions between such entity
and--
``(i) such person,
``(ii) any corporation or
partnership which such person controls,
and
``(iii) any United States person
owning, at the time the transaction
takes place--
``(I) in the case of a
foreign corporation, 10 percent
or more of the value of any
class of stock outstanding of
such corporation, and
``(II) in the case of a
foreign partnership, at least a
10-percent interest in such
partnership; and
``(E)(i) in the case of a foreign
corporation, a description of the various
classes of stock outstanding, and a list
showing the name and address of, and number of
shares held by, each United States person who
is a shareholder of record owning at any time
during the annual accounting period 5 percent
or more in value of any class of stock
outstanding of such foreign corporation, and
``(ii) information comparable to the
information described in clause (i) in the case
of a foreign partnership.
The Secretary may also require the furnishing of any
other information which is similar or related in nature
to that specified in the preceding sentence or which
the Secretary determines to be appropriate to carry out
the provisions of this title.''.
(b) Definitions.--
(1) In general.--Subsection (e) of section 6038
(relating to definitions) is amended--
(A) by redesignating paragraphs (1) and (2)
as paragraphs (2) and (4), respectively,
(B) by inserting before paragraph (2) (as
so redesignated) the following new paragraph:
``(1) Foreign business entity.--The term `foreign
business entity' means a foreign corporation and a
foreign partnership.'', and
(C) by inserting after paragraph (2) (as so
redesignated) the following new paragraph:
``(3) Partnership-related definitions.--
``(A) Control.--A person is in control of a
partnership if such person owns directly or
indirectly more than a 50 percent interest in
such partnership.
``(B) 50-percent interest.--For purposes of
subparagraph (A), a 50-percent interest in a
partnership is--
``(i) an interest equal to 50
percent of the capital interest, or 50
percent of the profits interest, in
such partnership, or
``(ii) to the extent provided in
regulations, an interest to which 50
percent of the deductions or losses of
such partnership are allocated.
For purposes of the preceding sentence, rules
similar to the rules of section 267(c) (other
than paragraph (3)) shall apply.
``(C) 10-percent interest.--A 10-percent
interest in a partnership is an interest which
would be described in subparagraph (B) if `10
percent' were substituted for `50 percent' each
place it appears.''.
(2) Clerical amendment.--The paragraph heading for
paragraph (2) of section 6038(e) (as so redesignated)
is amended by inserting ``of corporation'' after
``Control''.
(c) Modification of Sanctions on Partnerships and
Corporations for Failure To Furnish Information.--
(1) In general.--Subsection (b) of section 6038 is
amended--
(A) by striking ``$1,000'' each place it
appears and inserting ``$10,000'', and
(B) by striking ``$24,000'' in paragraph
(2) and inserting ``$50,000''.
(d) Reporting by 10-Percent Partners.--Subsection (a) of
section 6038 is amended by adding at the end the following new
paragraph:
``(5) Information required from 10-percent partner
of controlled foreign partnership.--In the case of a
foreign partnership which is controlled by United
States persons holding at least 10-percent interests
(but not by any one United States person), the
Secretary may require each United States person who
holds a 10-percent interest in such partnership to
furnish information relating to such partnership,
including information relating to such partner's
ownership interests in the partnership and allocations
to such partner of partnership items.''.
(e) Technical Amendments.--
(1) The following provisions of section 6038 are
each amended by striking ``foreign corporation'' each
place it appears and inserting ``foreign business
entity'':
(A) Paragraphs (2) and (3) of subsection
(a).
(B) Subsection (b).
(C) Subsection (c) other than paragraph
(1)(B) thereof.
(D) Subsection (d).
(E) Subsection (e)(4) (as redesignated by
subsection (b)).
(2) Subparagraph (B) of section 6038(c)(1) is
amended by inserting ``in the case of a foreign
business entity which is a foreign corporation,'' after
``(B)''.
(3) Paragraph (8) of section 318(b) is amended by
striking ``6038(d)(1)'' and inserting ``6038(d)(2)''.
(4) Paragraph (4) of section 901(k) is amended by
striking ``foreign corporation'' and inserting
``foreign corporation or partnership''.
(5) The table of sections for subpart A of part III
of subchapter A of chapter 61 is amended by striking
the item relating to section 6038 and inserting the
following new item:
``Sec. 6038. Information reporting with respect to certain
foreign corporations and partnerships.''.
(f) Effective Date.--The amendments made by this section
shall apply to annual accounting periods beginning after the
date of the enactment of this Act.
SEC. 1143. MODIFICATIONS RELATING TO RETURNS REQUIRED TO BE FILED BY
REASON OF CHANGES IN OWNERSHIP INTERESTS IN FOREIGN
PARTNERSHIP.
(a) No Return Required Unless Changes Involve 10-Percent
Interest in Partnership.--
(1) In general.--Subsection (a) of section 6046A
(relating to returns as to interests in foreign
partnerships) is amended by adding at the end the
following new sentence: ``Paragraphs (1) and (2) shall
apply to any acquisition or disposition only if the
United States person directly or indirectly holds at
least a 10-percent interest in such partnership either
before or after such acquisition or disposition, and
paragraph (3) shall apply to any change only if the
change is equivalent to at least a 10-percent interest
in such partnership.''.
(2) 10-percent interest.--Section 6046A is amended
by redesignating subsection (d) as subsection (e) and
by inserting after subsection (c) the following new
subsection:
``(d) 10-Percent Interest.--For purposes of subsection (a),
a 10-percent interest in a partnership is an interest described
in section 6038(e)(3)(C).''.
(b) Modification of Penalty on Failure to Report Changes in
Ownership Interests in Foreign Corporations and Partnerships.--
Subsection (a) of section 6679 (relating to failure to file
returns, etc., with respect to foreign corporations or foreign
partnerships) is amended to read as follows:
``(a) Civil Penalty.--
``(1) In general.--In addition to any criminal
penalty provided by law, any person required to file a
return under section 6035, 6046, or 6046A who fails to
file such return at the time provided in such section,
or who files a return which does not show the
information required pursuant to such section, shall
pay a penalty of $10,000, unless it is shown that such
failure is due to reasonable cause.
``(2) Increase in penalty where failure continues
after notification.--If any failure described in
paragraph (1) continues for more than 90 days after the
day on which the Secretary mails notice of such failure
to the United States person, such person shall pay a
penalty (in addition to the amount required under
paragraph (1)) of $10,000 for each 30-day period (or
fraction thereof) during which such failure continues
after the expiration of such 90-day period. The
increase in any penalty under this paragraph shall not
exceed $50,000.
``(3) Reduced penalty for returns relating to
foreign personal holding companies.--In the case of a
return required under section 6035, paragraph (1) shall
be applied by substituting `$1,000' for `$10,000', and
paragraph (2) shall not apply.''.
(c) Effective Date.--The amendments made by this section
shall apply to transfers and changes after the date of the
enactment of this Act.
SEC. 1144. TRANSFERS OF PROPERTY TO FOREIGN PARTNERSHIPS SUBJECT TO
INFORMATION REPORTING COMPARABLE TO INFORMATION
REPORTING FOR SUCH TRANSFERS TO FOREIGN
CORPORATIONS.
(a) In General.--Paragraph (1) of section 6038B(a)
(relating to notice of certain transfers to foreign
corporations) is amended to read as follows:
``(1) transfers property to--
``(A) a foreign corporation in an exchange
described in section 332, 351, 354, 355, 356,
or 361, or
``(B) a foreign partnership in a
contribution described in section 721 or in any
other contribution described in regulations
prescribed by the Secretary,''.
(b) Exceptions.--Section 6038B is amended by redesignating
subsection (b) as subsection (c) and by inserting after
subsection (a) the following new subsection:
``(b) Exceptions for Certain Transfers to Foreign
Partnerships; Special Rule.--
``(1) Exceptions.--Subsection (a)(1)(B) shall apply
to a transfer by a United States person to a foreign
partnership only if--
``(A) the United States person holds
(immediately after the transfer) directly or
indirectly at least a 10-percent interest (as
defined in section 6046A(d)) in the
partnership, or
``(B) the value of the property transferred
(when added to the value of the property
transferred by such person or any related
person to such partnership or a related
partnership during the 12-month period ending
on the date of the transfer) exceeds $100,000.
For purposes of the preceding sentence, the value of
any transferred property is its fair market value at
the time of its transfer.
``(2) Special rule.--If by reason of an adjustment
under section 482 or otherwise, a contribution
described in subsection (a)(1) is deemed to have been
made, such contribution shall be treated for purposes
of this section as having been made not earlier than
the date specified by the Secretary.''.
(c) Modification of Penalty Applicable to Foreign
Corporations and Partnerships.--
(1) In general.--Paragraph (1) of section 6038B(b)
is amended by striking ``equal to'' and all that
follows and inserting ``equal to 10 percent of the fair
market value of the property at the time of the
exchange (and, in the case of a contribution described
in subsection (a)(1)(B), such person shall recognize
gain as if the contributed property had been sold for
such value at the time of such contribution).''.
(2) Limit on penalty.--Section 6038B(b) is amended
by adding at the end the following new paragraph:
``(3) Limit on penalty.--The penalty under
paragraph (1) with respect to any exchange shall not
exceed $100,000 unless the failure with respect to such
exchange was due to intentional disregard.''.
(d) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to transfers made after the date of
the enactment of this Act.
(2) Election of retroactive effect.--Section
1494(c) of the Internal Revenue Code of 1986 shall not
apply to any transfer after August 20, 1996, if all
applicable reporting requirements under section 6038B
of such Code (as amended by this section) are
satisfied. The Secretary of the Treasury or his
delegate may prescribe simplified reporting
requirements under the preceding sentence.
SEC. 1145. EXTENSION OF STATUTE OF LIMITATIONS FOR FOREIGN TRANSFERS.
(a) In General.--Paragraph (8) of section 6501(c) (relating
to failure to notify Secretary under section 6038B) is amended
to read as follows:
``(8) Failure to notify secretary of certain
foreign transfers.--In the case of any information
which is required to be reported to the Secretary under
section 6038, 6038A, 6038B, 6046, 6046A, or 6048, the
time for assessment of any tax imposed by this title
with respect to any event or period to which such
information relates shall not expire before the date
which is 3 years after the date on which the Secretary
is furnished the information required to be reported
under such section.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to information the due date for the reporting of
which is after the date of the enactment of this Act.
SEC. 1146. INCREASE IN FILING THRESHOLDS FOR RETURNS AS TO ORGANIZATION
OF FOREIGN CORPORATIONS AND ACQUISITIONS OF STOCK
IN SUCH CORPORATIONS.
(a) In General.--Subsection (a) of section 6046 (relating
to returns as to organization or reorganization of foreign
corporations and as to acquisitions of their stock) is amended
to read as follows:
``(a) Requirement of return.--
``(1) In general.--A return complying with the
requirements of subsection (b) shall be made by--
``(A) each United States citizen or
resident who becomes an officer or director of
a foreign corporation if a United States person
(as defined in section 7701(a)(30)) meets the
stock ownership requirements of paragraph (2)
with respect to such corporation,
``(B) each United States person--
``(i) who acquires stock which,
when added to any stock owned on the
date of such acquisition, meets the
stock ownership requirements of
paragraph (2) with respect to a foreign
corporation, or
``(ii) who acquires stock which,
without regard to stock owned on the
date of such acquisition, meets the
stock ownership requirements of
paragraph (2) with respect to a foreign
corporation,
``(C) each person (not described in
subparagraph (B)) who is treated as a United
States shareholder under section 953(c) with
respect to a foreign corporation, and
``(D) each person who becomes a United
States person while meeting the stock ownership
requirements of paragraph (2) with respect to
stock of a foreign corporation.
In the case of a foreign corporation with respect to
which any person is treated as a United States
shareholder under section 953(c), subparagraph (A)
shall be treated as including a reference to each
United States person who is an officer or director of
such corporation.
``(2) Stock ownership requirements.--A person meets
the stock ownership requirements of this paragraph with
respect to any corporation if such person owns 10
percent or more of--
``(A) the total combined voting power of
all classes of stock of such corporation
entitled to vote, or
``(B) the total value of the stock of such
corporation.''.
(b) Effective Date.--The amendment made by this section
shall take effect on January 1, 1998.
Subtitle F--Determination of Foreign or Domestic Status of Partnerships
SEC. 1151. DETERMINATION OF FOREIGN OR DOMESTIC STATUS OF PARTNERSHIPS.
(a) In General.--Paragraph (4) of section 7701(a) is
amended by inserting before the period ``unless, in the case of
a partnership, the Secretary provides otherwise by
regulations''.
(b) Effective Date.--Any regulations issued with respect to
the amendment made by subsection (a) shall apply to
partnerships created or organized after the date determined
under section 7805(b) of the Internal Revenue Code of 1986
(without regard to paragraph (2) thereof) with respect to such
regulations.
Subtitle G--Other Simplification Provisions
SEC. 1161. TRANSITION RULE FOR CERTAIN TRUSTS.
(a) In General.--Paragraph (3) of section 1907(a) of the
Small Business Job Protection Act of 1996 is amended by adding
at the end the following flush sentence:
``To the extent prescribed in regulations by the
Secretary of the Treasury or his delegate, a trust
which was in existence on August 20, 1996 (other than a
trust treated as owned by the grantor under subpart E
of part I of subchapter J of chapter 1 of the Internal
Revenue Code of 1986), and which was treated as a
United States person on the day before the date of the
enactment of this Act may elect to continue to be
treated as a United States person notwithstanding
section 7701(a)(30)(E) of such Code.''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect as if included in the amendments made by
section 1907(a) of the Small Business Job Protection Act of
1996.
SEC. 1162. REPEAL OF STOCK AND SECURITIES SAFE HARBOR REQUIREMENT THAT
PRINCIPAL OFFICE BE OUTSIDE THE UNITED STATES.
(a) In General.--The last sentence of clause (ii) of
section 864(b)(2)(A) (relating to stock or securities) is
amended by striking ``, or in the case of a corporation'' and
all that follows and inserting a period.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1997.
SEC. 1163. MISCELLANEOUS CLARIFICATIONS.
(a) Attribution of Deemed Paid Foreign Taxes to Prior
Distributions.--Subparagraph (B) of section 902(c)(2) is
amended by striking ``deemed paid with respect to'' and
inserting ``attributable to''.
(b) Financial Services Income Determined Without Regard to
High-Taxed Income.--Subclause (II) of section 904(d)(2)(C)(i)
is amended by striking ``subclause (I)'' and inserting
``subclauses (I) and (III)''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
Subtitle H--Other Provisions
SEC. 1171. TREATMENT OF COMPUTER SOFTWARE AS FSC EXPORT PROPERTY.
(a) In General.--Subparagraph (B) of section 927(a)(2)
(relating to property excluded from eligibility as FSC export
property) is amended by inserting ``, and other than computer
software (whether or not patented)'' before ``, for commercial
or home use''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to gross receipts attributable to periods after
December 31, 1997, in taxable years ending after such date.
SEC. 1172. ADJUSTMENT OF DOLLAR LIMITATION ON SECTION 911 EXCLUSION.
(a) General Rule.--Paragraph (2) of section 911(b) is
amended by--
(1) by striking ``of $70,000'' in subparagraph (A)
and inserting ``equal to the exclusion amount for the
calendar year in which such taxable year begins'', and
(2) by adding at the end the following new
subparagraph:
``(D) Exclusion amount.--
``(i) In general.--The exclusion
amount for any calendar year is the
exclusion amount determined in
accordance with the following table (as
adjusted by clause (ii)):
The exclusion
``For calendar year-- amount is--
1998...................................................... $72,000
1999...................................................... 74,000
2000...................................................... 76,000
2001...................................................... 78,000
2002 and thereafter....................................... 80,000.
``(ii) Inflation adjustment.--In
the case of any taxable year beginning
in a calendar year after 2007, the
$80,000 amount in clause (i) shall be
increased by an amount equal to the
product of--
``(I) such dollar amount,
and
``(II) the cost-of-living
adjustment determined under
section 1(f)(3) for the
calendar year in which the
taxable year begins, determined
by substituting `2006' for
`1992' in subparagraph (B)
thereof.
If any increase determined under the
preceding sentence is not a multiple of
$100, such increase shall be rounded to
the next lowest multiple of $100.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 1173. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS
ACQUIRED BY DEALERS IN ORDINARY COURSE OF TRADE OR
BUSINESS.
(a) In General.--Section 956(c)(2) is amended by striking
``and'' at the end of subparagraph (H), by striking the period
at the end of subparagraph (I) and inserting a semicolon, and
by adding at the end the following new subparagraphs:
``(J) deposits of cash or securities made
or received on commercial terms in the ordinary
course of a United States or foreign person's
business as a dealer in securities or in
commodities, but only to the extent such
deposits are made or received as collateral or
margin for (i) a securities loan, notional
principal contract, options contract, forward
contract, or futures contract, or (ii) any
other financial transaction in which the
Secretary determines that it is customary to
post collateral or margin; and
``(K) an obligation of a United States
person to the extent the principal amount of
the obligation does not exceed the fair market
value of readily marketable securities sold or
purchased pursuant to a sale and repurchase
agreement or otherwise posted or received as
collateral for the obligation in the ordinary
course of its business by a United States or
foreign person which is a dealer in securities
or commodities.
For purposes of subparagraphs (J) and (K), the term
`dealer in securities' has the meaning given such term
by section 475(c)(1), and the term `dealer in
commodities' has the meaning given such term by section
475(e), except that such term shall include a futures
commission merchant.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years of foreign corporations beginning
after December 31, 1997, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.
SEC. 1174. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN INTERNATIONAL
TRANSPORTATION SERVICES.
(a) Sourcing Rules.--
(1) In general.--Section 861(a)(3) is amended by
adding at the end the following new flush sentence:
``In addition, except for purposes of sections 79 and
105 and subchapter D, compensation for labor or
services performed in the United States shall not be
deemed to be income from sources within the
UnitedStates if the labor or services are performed by a nonresident
alien individual in connection with the individual's temporary presence
in the United States as a regular member of the crew of a foreign
vessel engaged in transportation between the United States and a
foreign country or a possession of the United States.''.
(2) Transportation income.--Subparagraph (B) of
section 863(c)(2) is amended by adding at the end the
following flush sentence:
``In the case of transportation income derived
from, or in connection with, a vessel, this
subparagraph shall only apply if the taxpayer
is a citizen or resident alien.''.
(b) Presence in United States.--
(1) In general.--Paragraph (7) of section 7701(b)
is amended by adding at the end the following new
subparagraph:
``(D) Crew members temporarily present.--An
individual who is temporarily present in the
United States on any day as a regular member of
the crew of a foreign vessel engaged in
transportation between the United States and a
foreign country or a possession of the United
States shall not be treated as present in the
United States on such day unless such
individual otherwise engages in any trade or
business in the United States on such day.''.
(2) Conforming amendment.--Subparagraph (A) of
section 7701(b)(7) is amended by striking ``or (C)''
and inserting ``, (C), or (D)''.
(c) Effective Dates.--
(1) In general.--The amendments made by this
section shall apply to remuneration for services
performed in taxable years beginning after December 31,
1997.
(2) Presence.--The amendment made by subsection (b)
shall apply to taxable years beginning after December
31, 1997.
SEC. 1175. EXEMPTION FOR ACTIVE FINANCING INCOME.
(a) Exemption From Foreign Personal Holding Company
Income.--Section 954 is amended by adding at the end the
following new subsection:
``(h) Special Rule for Income Derived in the Active Conduct
of Banking, Financing, or Similar Businesses.--
``(1) In general.--For purposes of subsection
(c)(1), foreign personal holding company income shall
not include income which is--
``(A) derived in the active conduct by a
controlled foreign corporation of a banking,
financing, or similar business, but only if the
corporation is predominantly engaged in the
active conduct of such business,
``(B) received from a person other than a
related person (within the meaning of
subsection (d)(3)) and derived from the
investments made by a qualifying insurance
company of its reserves or of 80 percent of its
unearned premiums (as both are determined in
the manner prescribed under paragraph (4)), or
``(C) received from a person other than a
related person (within the meaning of
subsection (d)(3)) and derived from investments
made by a qualifying insurance company of an
amount of its assets equal to--
``(i) in the case of contracts
regulated in the country in which sold
as property, casualty, or health
insurance contracts, one-third of its
premiums earned on such insurance
contracts during the taxable year (as
defined in section 832(b)(4)), and
``(ii) in the case of contracts
regulated in the country in which sold
as life insurance or annuity contracts,
the greater of--
``(I) 10 percent of the
reserves described in
subparagraph (B) for such
contracts, or
``(II) in the case of a
qualifying insurance company
which is a start-up company,
$10,000,000.
``(2) Principles for determining applicable
income.--
``(A) Banking and financing income.--The
determination as to whether income is described
in paragraph (1)(A) shall be made--
``(i) except as provided in clause
(ii), in accordance with the applicable
principles of section 904(d)(2)(C)(ii),
except that such income shall include
income from all leases entered into in
the ordinary course of the active
conduct of a banking, financing, or
similar business, and
``(ii) in the case of a corporation
described in paragraph (3)(B), in
accordance with the applicable
principles of section 1296(b) (as in
effect on the day before theenactment
of the Taxpayer Relief Act of 1997) for determining what is not passive
income.
``(B) Insurance income.--Under rules
prescribed by the Secretary, for purposes of
paragraphs (1) (B) and (C)--
``(i) in the case of contracts
which are separate account-type
contracts (including variable contracts
not meeting the requirements of section
817), only income specifically
allocable to such contracts shall be
taken into account, and
``(ii) in the case of other
contracts, income not allocable under
clause (i) shall be allocated ratably
among such contracts.
``(C) Look-thru rules.--The Secretary shall
prescribe regulations consistent with the
principles of section 904(d)(3) which provide
that dividends, interest, income equivalent to
interest, rents, or royalties received or
accrued from a related person (within the
meaning of subsection (d)(3)) shall be subject
to look-thru treatment for purposes of this
subsection.
``(3) Predominantly engaged.--For purposes of
paragraph (1)(A), a corporation shall be deemed
predominantly engaged in the active conduct of a
banking, financing, or similar business only if--
``(A) more than 70 percent of its gross
income is derived from such business from
transactions with persons which are not related
persons (as defined in subsection (d)(3)) and
which are located within the country under the
laws of which the controlled foreign
corporation is created or organized, or
``(B) the corporation is--
``(i) engaged in the active conduct
of a banking or securities business
(within the meaning of section 1296(b),
as in effect before the enactment of
the Taxpayer Relief Act of 1997), or
``(ii) a qualified bank affiliate
or a qualified securities affiliate
(within the meaning of the proposed
regulations under such section
1296(b)).
``(4) Methods for determining unearned premiums and
reserves.--For purposes of paragraph (1)(B)--
``(A) Property and casualty contracts.--The
unearned premiums and reserves of a qualifying
insurance company with respectto property,
casualty, or health insurance contracts shall be determined using the
same methods and interest rates which would be used if such company
were subject to tax under subchapter L.
``(B) Life insurance and annuity
contracts.--The reserves of a qualifying
insurance company with respect to life
insurance or annuity contracts shall be
determined under the method described in
paragraph (5) which such company elects to
apply for purposes of this paragraph. Such
election shall be made at such time and in such
manner as the Secretary may prescribe and, once
made, shall be irrevocable without the consent
of the Secretary.
``(C) Limitation on reserves.--In no event
shall the reserve determined under this
paragraph for any contract as of any time
exceed the amount which would be taken into
account with respect to such contract as of
such time in determining foreign annual
statement reserves (less any catastrophe or
deficiency reserves).
``(5) Methods.--The methods described in this
paragraph are as follows:
``(A) U.S. method.--The method which would
apply if the qualifying insurance company were
subject to tax under subchapter L, except that
the interest rate used shall be an interest
rate determined for the foreign country in
which such company is created or organized and
which is calculated in the same manner as the
Federal mid-term rate under section 1274(d).
``(B) Foreign method.--A preliminary term
method, except that the interest rate used
shall be the interest rate determined for the
foreign country in which such company is
created or organized and which is calculated in
the same manner as the Federal mid-term rate
under section 1274(d). If a qualifying
insurance company uses such a preliminary term
method with respect to contracts insuring risks
located in such foreign country, such method
shall apply if such company elects the method
under this clause.
``(C) Cash surrender value.--A method under
which reserves are equal to the net surrender
value (as defined in section 807(e)(1)(A)) of
the contract.
``(6) Definitions.--For purposes of this
subsection--
``(A) Terms relating to insurance
companies.--
``(i) Qualifying insurance
company.--The term `qualifying
insurance company' means any entity
which--
``(I) is subject to
regulation as an insurance
company under the laws of its
country of incorporation,
``(II) realizes at least 50
percent of its net written
premiums from the insurance or
reinsurance of risks located
within the country in which
such entity is created or
organized, and
``(III) is engaged in the
active conduct of an insurance
business and would be subject
to tax under subchapter L if it
were a domestic corporation.
``(ii) Start-up company.--A
qualifying insurance company shall be
treated as a start-up company if such
company (and any predecessor) has not
been engaged in the active conduct of
an insurance business for more than 5
years as of the beginning of the
taxable year of such company.
``(B) Located.--For purposes of paragraph
(3)(A)--
``(i) In general.--A person shall
be treated as located--
``(I) except as provided in
subclause (II), within the
country in which it maintains
an office or other fixed place
of business through which it
engages in a trade or business
and by which the transaction is
effected, or
``(II) in the case of a
natural person, within the
country in which such person is
physically located when such
person enters into a
transaction.
``(ii) Special rule for qualified
business units.--Gross income derived
by a corporation's qualified business
unit (within the meaning of section
989(a)) from transactions with persons
which are not related persons (as
defined in subsection (d)(3)) and which
are located inthe country in which the
qualified business unit both maintains its principal office and
conducts substantial business activity shall be treated as derived from
transactions with persons which are not related persons (as defined in
subsection (d)(3)) and which are located within the country under the
laws of which the controlled foreign corporation is created or
organized.
``(7) Anti-abuse rules.--For purposes of applying
this subsection, there shall be disregarded any item of
income, gain, loss, or deduction with respect to any
transaction or series of transactions one of the
principal purposes of which is qualifying income or
gain for the exclusion under this section, including
any change in the method of computing reserves or any
other transaction or series of transactions a principal
purpose of which is the acceleration or deferral of any
item in order to claim the benefits of such exclusion
through the application of this subsection.
``(8) Coordination with section 953.--This
subsection shall not apply to investment income
allocable to contracts that insure related party risks
or risks located in a foreign country other than the
country in which the qualifying insurance comapny is
created or organized.
``(9) Application.--This subsection shall apply to
the first full taxable year of a foreign corporation
beginning after December 31, 1997, and before January
1, 1999, and to taxable years of United States
shareholders with or within which such taxable year of
such foreign corporation ends.''.
(b) Exemption From Foreign Base Company Services Income.--
Paragraph (2) of section 954(e) is amended by striking ``or''
at the end of subparagraph (A), by striking the period at the
end of subparagraph (B) and inserting ``, or'', and by adding
at the end the following:
``(C) in the case of taxable years
described in subsection (h)(8), the active
conduct by a controlled foreign corporation of
a banking, financing, insurance, or similar
business, but only if the corporation is
predominantly engaged in the active conduct of
such business (within the meaning of subsection
(h)(3)) or is a qualifying insurance
company.''.
(c) Effective Date.--The amendments made by this section
shall apply to the first full taxable year of a foreign
corporation beginning after December 31, 1997, and before
January 1, 1999, and to taxable years of United States
shareholders with or within which such taxable year of such
foreign corporation ends.
TITLE XII--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND
BUSINESSES
Subtitle A--Provisions Relating to Individuals
SEC. 1201. BASIC STANDARD DEDUCTION AND MINIMUM TAX EXEMPTION AMOUNT
FOR CERTAIN DEPENDENTS.
(a) Basic Standard Deduction.--
(1) In general.--Paragraph (5) of section 63(c)
(relating to limitation on basic standard deduction in
the case of certain dependents) is amended by striking
``shall not exceed'' and all that follows and inserting
``shall not exceed the greater of--
``(A) $500, or
``(B) the sum of $250 and such individual's
earned income.''.
(2) Conforming amendment.--Paragraph (4) of section
63(c) is amended--
(A) by striking ``(5)(A)'' in the material
preceding subparagraph (A) and inserting
``(5)'', and
(B) by striking ``by substituting'' and all
that follows in subparagraph (B) and inserting
``by substituting for `calendar year 1992' in
subparagraph (B) thereof--
``(i) `calendar year 1987' in the
case of the dollar amounts contained in
paragraph (2) or (5)(A) or subsection
(f), and
``(ii) `calendar year 1997' in the
case of the dollar amount contained in
paragraph (5)(B).''.
(b) Minimum Tax Exemption Amount.--
(1) In general.--Subsection (j) of section 59 is
amended to read as follows:
``(j) Treatment of Unearned Income of Minor Children.--
``(1) In general.--In the case of a child to whom
section 1(g) applies, the exemption amount for purposes
of section 55 shall not exceed the sum of--
``(A) such child's earned income (as
defined in section 911(d)(2)) for the taxable
year, plus
``(B) $5,000.
``(2) Inflation adjustment.--In the case of any
taxable year beginning in a calendar year after 1998,
the dollar amount in paragraph (1)(B) shall be
increased by an amount equal to the product of--
``(A) such dollar amount, and
``(B) the cost-of-living adjustment
determined under section 1(f)(3) for the
calendar year in which the taxable year begins,
determined by substituting `1997' for `1992' in
subparagraph (B) thereof.
If any increase determined under the preceding sentence
is not a multiple of $50, such increase shall be
rounded to the nearest multiple of $50.''.
(2) Conforming amendment.--Clause (iv) of section
6103(e)(1)(A) is amended by striking ``or 59(j)''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 1202. INCREASE IN AMOUNT OF TAX EXEMPT FROM ESTIMATED TAX
REQUIREMENTS.
(a) In General.--Paragraph (1) of section 6654(e) (relating
to exception where tax is small amount) is amended by striking
``$500'' and inserting ``$1,000''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 1203. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL MAIL
CARRIERS.
(a) In General.--Section 162 (relating to trade or business
expenses) is amended by redesignating subsection (o) as
subsection (p) and by inserting after subsection (n) the
following new subsection:
``(o) Treatment of Certain Reimbursed Expenses of Rural
Mail Carriers.--
``(1) General rule.--In the case of any employee of
the United States Postal Service who performs services
involving the collection and delivery of mail on a
rural route and who receives qualified reimbursements
for the expenses incurred by such employee for the use
of a vehicle in performing such services--
``(A) the amount allowable as a deduction
under this chapter for the use of a vehicle in
performing such services shall be equal to the
amount of such qualified reimbursements; and
``(B) such qualified reimbursements shall
be treated as paid under a reimbursement or
other expense allowance arrangement for
purposes of section 62(a)(2)(A) (and section
62(c) shall not apply to such qualified
reimbursements).
``(2) Definition of qualified reimbursements.--For
purposes of this subsection, the term `qualified
reimbursements' means the amounts paid by the United
States Postal Service to employees as an equipment
maintenance allowance under the 1991 collective
bargaining agreement between the United States Postal
Service and the National Rural Letter Carriers'
Association. Amounts paid as an equipment maintenance
allowance by such Postal Service under later collective
bargaining agreements that supersede the 1991 agreement
shall be considered qualified reimbursements if such
amounts do not exceed the amounts that would have been
paid under the 1991 agreement, adjusted for changes in
the Consumer Price Index (as defined in section
1(f)(5)) since 1991.''.
(b) Technical Amendment.--Section 6008 of the Technical and
Miscellaneous Revenue Act of 1988 is hereby repealed.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 1204. TREATMENT OF TRAVELING EXPENSES OF CERTAIN FEDERAL EMPLOYEES
ENGAGED IN CRIMINAL INVESTIGATIONS.
(a) In General.--Subsection (a) of section 162 is amended
by adding at the end the following new sentence: ``The
preceding sentence shall not apply to any Federal employee
during any period for which such employee is certified by the
Attorney General (or the designee thereof) as traveling on
behalf of the United States in temporary duty status to
investigate, or provide support services for the investigation
of, a Federal crime.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to amounts paid or incurred with respect to taxable
years ending after the date of the enactment of this Act.
SEC. 1205. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.
(a) General Rule.--Section 6311 is amended to read as
follows:
``SEC. 6311. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.
``(a) Authority To Receive.--It shall be lawful for the
Secretary to receive for internal revenue taxes (or in payment
for internal revenue stamps) any commercially acceptable means
that the Secretary deems appropriate to the extent and under
the conditions provided in regulations prescribed by the
Secretary.
``(b) Ultimate Liability.--If a check, money order, or
other method of payment, including payment by credit card,
debit card, or charge card so received is not duly paid, or is
paid and subsequently charged back to the Secretary, the person
by whom such check, or money order, or other method of payment
has been tendered shall remain liable for the payment of the
tax or for the stamps, and for all legal penalties and
additions, to the same extent as if such check, money order, or
other method of payment had not been tendered.
``(c) Liability of Banks and Others.--If any certified,
treasurer's, or cashier's check (or other guaranteed draft), or
any money order, or any other means of payment that has been
guaranteed by a financial institution (such as a credit card,
debit card, or charge card transaction which has been
guaranteed expressly by a financial institution) so received is
not duly paid, the United States shall, in addition to its
right to exact payment from the party originally indebted
therefor, have a lien for--
``(1) the amount of such check (or draft) upon all
assets of the financial institution on which drawn,
``(2) the amount of such money order upon all the
assets of the issuer thereof, or
``(3) the guaranteed amount of any other
transaction upon all the assets of the institution
making such guarantee,
and such amount shall be paid out of such assets in preference
to any other claims whatsoever against such financial
institution, issuer, or guaranteeing institution, except the
necessary costs and expenses of administration and the
reimbursement of the United States for the amount expended in
the redemption of the circulating notes of such financial
institution.
``(d) Payment by Other Means.--
``(1) Authority to prescribe regulations.--The
Secretary shall prescribe such regulations as the
Secretary deems necessary to receive payment by
commercially acceptable means, including regulations
that--
``(A) specify which methods of payment by
commercially acceptable means will be
acceptable,
``(B) specify when payment by such means
will be considered received,
``(C) identify types of nontax matters
related to payment by such means that are to be
resolved by persons ultimately liable for
payment and financial intermediaries, without
the involvement of the Secretary, and
``(D) ensure that tax matters will be
resolved by the Secretary, without the
involvement of financial intermediaries.
``(2) Authority to enter into contracts.--
Notwithstanding section 3718(f) of title 31, United
States Code, the Secretary is authorized to enter into
contracts to obtain services related to receiving
payment by other means where cost beneficial to the
Government. The Secretary may not pay any fee or
provide any other consideration under such contracts.
``(3) Special provisions for use of credit cards.--
If use of credit cards is accepted as a method of
payment of taxes pursuant to subsection (a)--
``(A) a payment of internal revenue taxes
(or a payment for internal revenue stamps) by a
person by use of a credit card shall not be
subject to section 161 of the Truth in Lending
Act (15 U.S.C. 1666), or to any similar
provisions of State law, if the error alleged
by the person is an error relating to the
underlying tax liability, rather than an error
relating to the credit card account such as a
computational error or numerical transposition
in the credit card transaction or an issue as
to whether the person authorized payment by use
of the credit card,
``(B) a payment of internal revenue taxes
(or a payment for internal revenue stamps)
shall not be subject to section 170 of the
Truth in Lending Act (15 U.S.C. 1666i), or to
any similar provisions of State law,
``(C) a payment of internal revenue taxes
(or a payment for internal revenue stamps) by a
person by use of a debit card shall not be
subject to section 908 of the Electronic Fund
Transfer Act (15 U.S.C. 1693f), or to any
similar provisions of State law, if the error
alleged by the person is an error relating to
the underlying tax liability, rather than an
error relating to the debit card account such
as a computational error or numerical
transposition in the debit card transaction or
an issue as to whether the person authorized
payment by use of the debit card,
``(D) the term `creditor' under section
103(f) of the Truth in Lending Act (15 U.S.C.
1602(f)) shall not include the Secretary with
respect to credit card transactions in payment
of internal revenue taxes (or payment for
internal revenue stamps), and
``(E) notwithstanding any other provision
of law to the contrary, in the case of payment
made by credit card or debit card transaction
of an amount owed to a person as the result of
the correction of an error under section 161 of
the Truth in Lending Act (15 U.S.C. 1666) or
section 908 of the Electronic Fund Transfer Act
(15 U.S.C. 1693f), the Secretary is authorized
to provide such amount to such person as a
credit to that person's credit card or debit
card account through the applicable credit card
or debit card system.
``(e) Confidentiality of Information.--
``(1) In general.--Except as otherwise authorized
by this subsection, no person may use or disclose any
information relating to credit or debit card
transactions obtained pursuant to section 6103(k)(8)
other than for purposes directly related to the
processing of such transactions, or the billing or
collection of amounts charged or debited pursuant
thereto.
``(2) Exceptions.--
``(A) Debit or credit card issuers or
others acting on behalf of such issuers may
also use and disclose such information for
purposes directly related to servicing an
issuer's accounts.
``(B) Debit or credit card issuers or
others directly involved in the processing of
credit or debit card transactions or the
billing or collection of amounts charged or
debited thereto may also use and disclose such
information for purposes directly related to--
``(i) statistical risk and
profitability assessment;
``(ii) transferring receivables,
accounts, or interest therein;
``(iii) auditing the account
information;
``(iv) complying with Federal,
State, or local law; and
``(v) properly authorized civil,
criminal, or regulatory investigation
by Federal, State, or local
authorities.
``(3) Procedures.--Use and disclosure of
information under this paragraph shall be made only to
the extent authorized by written procedures promulgated
by the Secretary.
``(4) Cross reference.--
``For provision providing for civil damages for violation of
paragraph (1), see section 7431.''.
(b) Clerical Amendment.--The table of sections for
subchapter B of chapter 64 is amended by striking the item
relating to section 6311 and inserting the following:
``Sec. 6311. Payment of tax by commercially acceptable means.''.
(c) Amendments to Sections 6103 and 7431 With Respect to
Disclosure Authorization.--
(1) Subsection (k) of section 6103 (relating to
confidentiality and disclosure of returns and return
information) is amended by adding at the end the
following new paragraph:
``(8) Disclosure of information to administer
section 6311.--The Secretary may disclose returns or
return information to financial institutions and others
to the extent the Secretary deems necessary for the
administration of section 6311. Disclosures of
information for purposes other than to accept payments
by checks or money orders shall be made only to the
extent authorized by written procedures promulgated by
the Secretary.''.
(2) Section 7431 (relating to civil damages for
unauthorized disclosure of returns and return
information) is amended by adding at the end the
following new subsection:
``(g) Special Rule for Information Obtained Under Section
6103(k)(8).--For purposes of this section, any reference to
section 6103 shall be treated as including a reference to
section 6311(e).''.
(3) Section 6103(p)(3)(A) is amended by striking
``or (6)'' and inserting ``(6), or (8)''.
(d) Effective Date.--The amendments made by this section
shall take effect on the day 9 months after the date of the
enactment of this Act.
Subtitle B--Provisions Relating to Businesses Generally
SEC. 1211. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM CONTRACTS.
(a) Look-Back Method Not To Apply in Certain Cases.--
Subsection (b) of section 460 (relating to percentage of
completion method) is amended by adding at the end the
following new paragraph:
``(6) Election to have look-back method not apply
in de minimis cases.--
``(A) Amounts taken into account after
completion of contract.--Paragraph (1)(B) shall
not apply with respect to any taxable year
(beginning after the taxable year in which the
contract is completed) if--
``(i) the cumulative taxable income
(or loss) under the contract as of the
close of such taxable year, is within
``(ii) 10 percent of the cumulative
look-back taxable income (or loss)
under the contract as of the close of
the most recent taxable year to which
paragraph (1)(B) applied (or would have
applied but for subparagraph (B)).
``(B) De minimis discrepancies.--Paragraph
(1)(B) shall not apply in any case to which it
would otherwise apply if--
``(i) the cumulative taxable income
(or loss) under the contract as of the
close of each prior contract year, is
within
``(ii) 10 percent of the cumulative
look-back income (or loss) under the
contract as of the close of such prior
contract year.
``(C) Definitions.--For purposes of this
paragraph--
``(i) Contract year.--The term
`contract year' means any taxable year
for which income is taken into account
under the contract.
``(ii) Look-back income or loss.--
The look-back income (or loss) is the
amount which would be the taxable
income (or loss) under the contract if
the allocation method set forth in
paragraph (2)(A) were used in
determining taxable income.
``(iii) Discounting not
applicable.--The amounts taken into
account after the completion of the
contract shall be determined without
regard to any discounting under the 2nd
sentence of paragraph (2).
``(D) Contracts to which paragraph
applies.--This paragraph shall only apply if
the taxpayer makes an election under this
subparagraph. Unless revoked with the consent
of the Secretary, such an election shall apply
to all long-term contracts completed during the
taxable year for which election is made or
during any subsequent taxable year.''.
(b) Modification of Interest Rate.--
(1) In general.--Subparagraph (C) of section
460(b)(2) is amended by striking ``the overpayment rate
established by section 6621'' and inserting ``the
adjusted overpayment rate (as defined in paragraph
(7))''.
(2) Adjusted overpayment rate.--Subsection (b) of
section 460 is amended by adding at the end the
following new paragraph:
``(7) Adjusted overpayment rate.--
``(A) In general.--The adjusted overpayment
rate for any interest accrual period is the
overpayment rate in effect under section 6621
for the calendar quarter in which such interest
accrual period begins.
``(B) Interest accrual period.--For
purposes of subparagraph (A), the term
`interest accrual period' means the period--
``(i) beginning on the day after
the return due date for any taxable
year of the taxpayer, and
``(ii) ending on the return due
date for the following taxable year.
For purposes of the preceding sentence, the
term `return due date' means the date
prescribed for filing the return of the tax
imposed by this chapter (determined without
regard to extensions).''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph
(2), the amendments made by this section shall apply to
contracts completed in taxable years ending after the
date of the enactment of this Act.
(2) Subsection (b).--The amendments made by
subsection (b) shall apply for purposes of section
167(g) of the Internal Revenue Code of 1986 to property
placed in service after September 13, 1995.
SEC. 1212. MINIMUM TAX TREATMENT OF CERTAIN PROPERTY AND CASUALTY
INSURANCE COMPANIES.
(a) In General.--Clause (i) of section 56(g)(4)(B)
(relating to inclusion of items included for purposes of
computing earnings and profits) is amended by adding at the end
the following new sentence: ``In the case of any insurance
company taxable under section 831(b), this clause shall not
apply to any amount not described in section 834(b).''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1997.
SEC. 1213. QUALIFIED LESSEE CONSTRUCTION ALLOWANCES FOR SHORT-TERM
LEASES.
(a) In General.--Part III of subchapter B of chapter 1 is
amended by inserting after section 109 the following new
section:
``SEC. 110. QUALIFIED LESSEE CONSTRUCTION ALLOWANCES FOR SHORT-TERM
LEASES.
``(a) In General.--Gross income of a lessee does not
include any amount received in cash (or treated as a rent
reduction) by a lessee from a lessor--
``(1) under a short-term lease of retail space, and
``(2) for the purpose of such lessee's constructing
or improving qualified long-term real property for use
in such lessee's trade or business at such retail
space,
but only to the extent that such amount does not exceed the
amount expended by the lessee for such construction or
improvement.
``(b) Consistent Treatment by Lessor.--Qualified long-term
real property constructed or improved in connection with any
amount excluded from a lessee's income by reason of subsection
(a) shall be treated as nonresidential real property of the
lessor (including for purposes of section 168(i)(8)(B)).
``(c) Definitions.--For purposes of this section--
``(1) Qualified long-term real property.--The term
`qualified long-term real property' means
nonresidential real property which is part of, or
otherwise present at, the retail space referred to in
subsection (a) and which reverts to the lessor at the
termination of the lease.
``(2) Short-term lease.--The term `short-term
lease' means a lease (or other agreement for occupancy
or use) of retail space for 15 years or less (as
determined under the rules of section 168(i)(3)).
``(3) Retail space.--The term `retail space' means
real property leased, occupied, or otherwise used by a
lessee in its trade or business of selling tangible
personal property or services to the general public.
``(d) Information Required To Be Furnished to Secretary.--
Under regulations, the lessee and lessor described in
subsection (a) shall, at such times and in such manner as may
be provided in such regulations, furnish to the Secretary--
``(1) information concerning the amounts received
(or treated as a rent reduction) and expended as
described in subsection (a), and
``(2) any other information which the Secretary
deems necessary to carry out the provisions of this
section.''.
(b) Treatment as Information Return.--Subparagraph (A) of
section 6724(d)(1)(A) is amended by striking ``or'' at the end
of clause (vii), by adding ``or'' at the end of clause (viii),
and by adding at the end the following new clause:
``(ix) section 110(d) (relating to
qualified lessee construction
allowances for short-term leases),''.
(c) Cross Reference.--Paragraph (8) of section 168(i)
(relating to treatment of leasehold improvements) is amended by
adding at the end the following new subparagraph:
``(C) Cross reference.--
``For treatment of qualified long-term real property
constructed or improved in connection with cash or rent
reduction from lessor to lessee, see section 110(b).''.
(d) Clerical Amendment.--The table of sections for part III
of subchapter B of chapter 1 is amended by inserting after the
item relating to section 109 the following new item:
``Sec. 110. Qualified lessee construction allowances for short-
term leases.''.
(e) Effective Date.--The amendments made by this section
shall apply to leases entered into after the date of the
enactment of this Act.
Subtitle C--Simplification Relating to Electing Large Partnerships
PART I--GENERAL PROVISIONS
SEC. 1221. SIMPLIFIED FLOW-THROUGH FOR ELECTING LARGE PARTNERSHIPS.
(a) General Rule.--Subchapter K (relating to partners and
partnerships) is amended by adding at the end the following new
part:
``PART IV--SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
``Sec. 771. Application of subchapter to electing large
partnerships.
``Sec. 772. Simplified flow-through.
``Sec. 773. Computations at partnership level.
``Sec. 774. Other modifications.
``Sec. 775. Electing large partnership defined.
``Sec. 776. Special rules for partnerships holding oil and gas
properties.
``Sec. 777. Regulations.
``SEC. 771. APPLICATION OF SUBCHAPTER TO ELECTING LARGE PARTNERSHIPS.
``The preceding provisions of this subchapter to the extent
inconsistent with the provisions of this part shall not apply
to an electing large partnership and its partners.
``SEC. 772. SIMPLIFIED FLOW-THROUGH.
``(a) General Rule.--In determining the income tax of a
partner of an electing large partnership, such partner shall
take into account separately such partner's distributive share
of the partnership's--
``(1) taxable income or loss from passive loss
limitation activities,
``(2) taxable income or loss from other activities,
``(3) net capital gain (or net capital loss)--
``(A) to the extent allocable to passive
loss limitation activities, and
``(B) to the extent allocable to other
activities,
``(4) tax-exempt interest,
``(5) applicable net AMT adjustment separately
computed for--
``(A) passive loss limitation activities,
and
``(B) other activities,
``(6) general credits,
``(7) low-income housing credit determined under
section 42,
``(8) rehabilitation credit determined under
section 47,
``(9) foreign income taxes,
``(10) the credit allowable under section 29, and
``(11) other items to the extent that the Secretary
determines that the separate treatment of such items is
appropriate.
``(b) Separate Computations.--In determining the amounts
required under subsection (a) to be separately taken into
account by any partner, this section and section 773 shall be
applied separately with respect to such partner by taking into
account such partner's distributive share of the items of
income, gain, loss, deduction, or credit of the partnership.
``(c) Treatment at Partner Level.--
``(1) In general.--Except as provided in this
subsection, rules similar to the rules of section
702(b) shall apply to any partner's distributive share
of the amounts referred to in subsection (a).
``(2) Income or loss from passive loss limitation
activities.--For purposes of this chapter, any
partner's distributive share of any income or loss
described in subsection (a)(1) shall be treated as an
item of income or loss (as the case may be) from the
conduct of a trade or business which is a single
passive activity (as defined in section 469). A similar
rule shall apply to a partner's distributive share of
amounts referred to in paragraphs (3)(A) and (5)(A) of
subsection (a).
``(3) Income or loss from other activities.--
``(A) In general.--For purposes of this
chapter, any partner's distributive share of
any income or loss described in subsection
(a)(2) shall be treated as an item of income or
expense (as the case may be) with respect to
property held for investment.
``(B) Deductions for loss not subject to
section 67.--The deduction under section 212
for any loss described in subparagraph (A)
shall not be treated as a miscellaneous
itemized deduction for purposes of section 67.
``(4) Treatment of net capital gain or loss.--For
purposes of this chapter, any partner's distributive
share of any gain or loss described in subsection
(a)(3) shall be treated as a long-term capital gain or
loss, as the case may be.
``(5) Minimum tax treatment.--In determining the
alternative minimum taxable income of any partner, such
partner's distributive share of any applicable net AMT
adjustment shall be taken into account in lieu of
making the separate adjustments provided in sections
56, 57, and 58 with respect to the items of the
partnership. Except as provided in regulations, the
applicable net AMT adjustment shall be treated, for
purposes of section 53, as an adjustment or item of tax
preference not specified in section 53(d)(1)(B)(ii).
``(6) General credits.--A partner's distributive
share of the amount referred to in paragraph (6) of
subsection (a) shall be taken into account as a current
year business credit.
``(d) Operating Rules.--For purposes of this section--
``(1) Passive loss limitation activity.--The term
`passive loss limitation activity' means--
``(A) any activity which involves the
conduct of a trade or business, and
``(B) any rental activity.
For purposes of the preceding sentence, the term `trade
or business' includes any activity treated as a trade
or business under paragraph (5) or (6) of section
469(c).
``(2) Tax-exempt interest.--The term `tax-exempt
interest' means interest excludable from gross income
under section 103.
``(3) Applicable net amt adjustment.--
``(A) In general.--The applicable net AMT
adjustment is--
``(i) with respect to taxpayers
other than corporations, the net
adjustment determined by using the
adjustments applicable to individuals,
and
``(ii) with respect to
corporations, the net adjustment
determined by using the adjustments
applicable to corporations.
``(B) Net adjustment.--The term `net
adjustment' means the net adjustment in the
items attributable to passive loss activities
or other activities (as the case may be) which
would result if such items were determined with
the adjustments of sections 56, 57, and 58.
``(4) Treatment of certain separately stated
items.--
``(A) Exclusion for certain purposes.--In
determining the amounts referred to in
paragraphs (1) and (2) of subsection (a), any
net capital gain or net capital loss (as the
case may be), and any item referred to in
subsection (a)(11), shall be excluded.
``(B) Allocation rules.--The net capital
gain shall be treated--
``(i) as allocable to passive loss
limitation activities to the extent the
net capital gain does not exceed the
net capital gain determined by only
taking into account gains and losses
from sales and exchanges of property
used in connection with such
activities, and
``(ii) as allocable to other
activities to the extent such gain
exceeds the amount allocated under
clause (i).
A similar rule shall apply for purposes of
allocating any net capital loss.
``(C) Net capital loss.--The term `net
capital loss' means the excess of the losses
from sales or exchanges of capital assets over
the gains from sales or exchange of capital
assets.
``(5) General credits.--The term `general credits'
means any credit other than the low-income housing
credit, the rehabilitation credit, the foreign tax
credit, and the credit allowable under section 29.
``(6) Foreign income taxes.--The term `foreign
income taxes' means taxes described in section 901
which are paid or accrued to foreign countries and to
possessions of the United States.
``(e) Special Rule for Unrelated Business Tax.--In the case
of a partner which is an organization subject to tax under
section 511, such partner's distributive share of any items
shall be taken into account separately to the extent necessary
to comply with the provisions of section 512(c)(1).
``(f) Special Rules for Applying Passive Loss
Limitations.--If any person holds an interest in an electing
large partnership other than as a limited partner--
``(1) paragraph (2) of subsection (c) shall not
apply to such partner, and
``(2) such partner's distributive share of the
partnership items allocable to passive loss limitation
activities shall be taken into account separately to
the extent necessary to comply with the provisions of
section 469.
The preceding sentence shall not apply to any items allocable
to an interest held as a limited partner.
``SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.
``(a) General Rule.--
``(1) Taxable income.--The taxable income of an
electing large partnership shall be computed in the
same manner as in the case of an individual except
that--
``(A) the items described in section 772(a)
shall be separately stated, and
``(B) the modifications of subsection (b)
shall apply.
``(2) Elections.--All elections affecting the
computation of the taxable income of an electing large
partnership or the computation of any credit of an
electing large partnership shall be made by the
partnership; except that the election under section
901, and any election under section 108, shall be made
by each partner separately.
``(3) Limitations, etc.--
``(A) In general.--Except as provided in
subparagraph (B), all limitations and other
provisions affecting the computation of the
taxable income of an electing large partnership
or the computation of any credit of an electing
large partnership shall be applied at the
partnership level (and not at the partner
level).
``(B) Certain limitations applied at
partner level.--The following provisions shall
be applied at the partner level (and not at the
partnership level):
``(i) Section 68 (relating to
overall limitation on itemized
deductions).
``(ii) Sections 49 and 465
(relating to at risk limitations).
``(iii) Section 469 (relating to
limitation on passive activity losses
and credits).
``(iv) Any other provision
specified in regulations.
``(4) Coordination with other provisions.--
Paragraphs (2) and (3) shall apply notwithstanding any
other provision of this chapter other than this part.
``(b) Modifications to Determination of Taxable Income.--In
determining the taxable income of an electing large
partnership--
``(1) Certain deductions not allowed.--The
following deductions shall not be allowed:
``(A) The deduction for personal exemptions
provided in section 151.
``(B) The net operating loss deduction
provided in section 172.
``(C) The additional itemized deductions
for individuals provided in part VII of
subchapter B (other than section 212 thereof).
``(2) Charitable deductions.--In determining the
amount allowable under section 170, the limitation of
section 170(b)(2) shall apply.
``(3) Coordination with section 67.--In lieu of
applying section 67, 70 percent of the amount of the
miscellaneous itemized deductions shall be disallowed.
``(c) Special Rules for Income From Discharge of
Indebtedness.--If an electing large partnership has income from
the discharge of any indebtedness--
``(1) such income shall be excluded in determining
the amounts referred to in section 772(a), and
``(2) in determining the income tax of any partner
of such partnership--
``(A) such income shall be treated as an
item required to be separately taken into
account under section 772(a), and
``(B) the provisions of section 108 shall
be applied without regard to this part.
``SEC. 774. OTHER MODIFICATIONS.
``(a) Treatment of Certain Optional Adjustments, Etc.--In
the case of an electing large partnership--
``(1) computations under section 773 shall be made
without regard to any adjustment under section 743(b)
or 108(b), but
``(2) a partner's distributive share of any amount
referred to in section 772(a) shall be appropriately
adjusted to take into account any adjustment under
section 743(b) or 108(b) with respect to such partner.
``(b) Credit Recapture Determined at Partnership Level.--
``(1) In general.--In the case of an electing large
partnership--
``(A) any credit recapture shall be taken
into account by the partnership, and
``(B) the amount of such recapture shall be
determined as if the credit with respect to
which the recapture is made had been fully
utilized to reduce tax.
``(2) Method of taking recapture into account.--An
electing large partnership shall take into account a
credit recapture by reducing the amount of the
appropriate current year credit to the extent thereof,
and if such recapture exceeds the amount of such
current year credit, the partnership shall be liable to
pay such excess.
``(3) Dispositions not to trigger recapture.--No
credit recapture shall be required by reason of any
transfer of an interest in an electing large
partnership.
``(4) Credit recapture.--For purposes of this
subsection, the term `credit recapture' means any
increase in tax under section 42(j) or 50(a).
``(c) Partnership Not Terminated by Reason of Change in
Ownership.--Subparagraph (B) of section 708(b)(1) shall not
apply to an electing large partnership.
``(d) Partnership Entitled to Certain Credits.--The
following shall be allowed to an electing large partnership and
shall not be taken into account by the partners of such
partnership:
``(1) The credit provided by section 34.
``(2) Any credit or refund under section
852(b)(3)(D).
``(e) Treatment of REMIC Residuals.--For purposes of
applying section 860E(e)(6) to any electing large partnership--
``(1) all interests in such partnership shall be
treated as held by disqualified organizations,
``(2) in lieu of applying subparagraph (C) of
section 860E(e)(6), the amount subject to tax under
section 860E(e)(6) shall be excluded from the gross
income of such partnership, and
``(3) subparagraph (D) of section 860E(e)(6) shall
not apply.
``(f) Special Rules for Applying Certain Installment Sale
Rules.--In the case of an electing large partnership--
``(1) the provisions of sections 453(l)(3) and 453A
shall be applied at the partnership level, and
``(2) in determining the amount of interest payable
under such sections, such partnership shall be treated
as subject to tax under this chapter at the highest
rate of tax in effect under section 1 or 11.
``SEC. 775. ELECTING LARGE PARTNERSHIP DEFINED.
``(a) General Rule.--For purposes of this part--
``(1) In general.--The term `electing large
partnership' means, with respect to any partnership
taxable year, any partnership if--
``(A) the number of persons who were
partners in such partnership in the preceding
partnership taxable year equaled or exceeded
100, and
``(B) such partnership elects the
application of this part.
To the extent provided in regulations, a partnership
shall cease to be treated as an electing large
partnership for any partnership taxable year if in such
taxable year fewer than 100 persons were partners in
such partnership.
``(2) Election.--The election under this subsection
shall apply to the taxable year for which made and all
subsequent taxable years unless revoked with the
consent of the Secretary.
``(b) Special Rules for Certain Service Partnerships.--
``(1) Certain partners not counted.--For purposes
of this section, the term `partner' does not include
any individual performing substantial services in
connection with the activities of the partnership and
holding an interest in such partnership, or an
individual who formerly performed substantial services
in connection with such activities and who held an
interest in such partnership at the time the individual
performed such services.
``(2) Exclusion.--For purposes of this part, an
election under subsection (a) shall not be effective
with respect to any partnership if substantially all
the partners of such partnership--
``(A) are individuals performing
substantial services in connection with the
activities of such partnership or are personal
service corporations (as defined in section
269A(b)) the owner-employees (as defined in
section 269A(b)) of which perform such
substantial services,
``(B) are retired partners who had
performed such substantial services, or
``(C) are spouses of partners who are
performing (or had previously performed) such
substantial services.
``(3) Special rule for lower tier partnerships.--
For purposes of this subsection, the activities of a
partnership shall include the activities of any other
partnership in which the partnership owns directly an
interest in the capital and profits of at least 80
percent.
``(c) Exclusion of Commodity Pools.--For purposes of this
part, an election under subsection (a) shall not be effective
with respect to any partnership the principal activity of which
is the buying and selling of commodities (not described in
section 1221(1)), or options, futures, or forwards with respect
to such commodities.
``(d) Secretary May Rely on Treatment on Return.--If, on
the partnership return of any partnership, such partnership is
treated as an electing large partnership, such treatment shall
be binding on such partnership and all partners of such
partnership but not on the Secretary.
``SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING OIL AND GAS
PROPERTIES.
``(a) Computation of Percentage Depletion.--In the case of
an electing large partnership, except as provided in subsection
(b)--
``(1) the allowance for depletion under section 611
with respect to any partnership oil or gas property
shall be computed at the partnership level without
regard to any provision of section 613A requiring such
allowance to be computed separately by each partner,
``(2) such allowance shall be determined without
regard to the provisions of section 613A(c) limiting
the amount of production for which percentage depletion
is allowable and without regard to paragraph (1) of
section 613A(d), and
``(3) paragraph (3) of section 705(a) shall not
apply.
``(b) Treatment of Certain Partners.--
``(1) In general.--In the case of a disqualified
person, the treatment under this chapter of such
person's distributive share of any item of income,
gain, loss, deduction, or credit attributable to any
partnership oil or gas property shall be determined
without regard to this part. Such person's distributive
share of any such items shall be excluded for purposes
of making determinations under sections 772 and 773.
``(2) Disqualified person.--For purposes of
paragraph (1), the term `disqualified person' means,
with respect to any partnership taxable year--
``(A) any person referred to in paragraph
(2) or (4) of section 613A(d) for such person's
taxable year in which such partnership taxable
year ends, and
``(B) any other person if such person's
average daily production of domestic crude oil
and natural gas for such person's taxable year
in which such partnership taxable year ends
exceeds 500 barrels.
``(3) Average daily production.--For purposes of
paragraph (2), a person's average daily production of
domestic crude oil and natural gas for any taxable year
shall be computed as provided in section 613A(c)(2)--
``(A) by taking into account all production
of domestic crude oil and natural gas
(including such person's proportionate share of
any production of a partnership),
``(B) by treating 6,000 cubic feet of
natural gas as a barrel of crude oil, and
``(C) by treating as 1 person all persons
treated as 1 taxpayer under section 613A(c)(8)
or among whom allocations are required under
such section.
``SEC. 777. REGULATIONS.
``The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this part.''.
(b) Clerical Amendment.--The table of parts for subchapter
K of chapter 1 is amended by adding at the end the following
new item:
``Part IV. Special rules for electing large partnerships.''.
(c) Effective Date.--The amendments made by this section
shall apply to partnership taxable years beginning after
December 31, 1997.
SEC. 1222. SIMPLIFIED AUDIT PROCEDURES FOR ELECTING LARGE PARTNERSHIPS.
(a) General Rule.--Chapter 63 is amended by adding at the
end thereof the following new subchapter:
``Subchapter D--Treatment of electing large partnerships
``Part I. Treatment of partnership items and adjustments.
``Part II. Partnership level adjustments.
``Part III. Definitions and special rules.
``PART I--TREATMENT OF PARTNERSHIP ITEMS AND ADJUSTMENTS
``Sec. 6240. Application of subchapter.
``Sec. 6241. Partner's return must be consistent with
partnership return.
``Sec. 6242. Procedures for taking partnership adjustments into
account.
``SEC. 6240. APPLICATION OF SUBCHAPTER.
``(a) General Rule.--This subchapter shall only apply to
electing large partnerships and partners in such partnerships.
``(b) Coordination With Other Partnership Audit
Procedures.--
``(1) In general.--Subchapter C of this chapter
shall not apply to any electing large partnership other
than in its capacity as a partner in another
partnership which is not an electing large partnership.
``(2) Treatment where partner in other
partnership.--If an electing large partnership is a
partner in another partnership which is not an electing
large partnership--
``(A) subchapter C of this chapter shall
apply to items of such electing large
partnership which are partnership items with
respect to such other partnership, but
``(B) any adjustment under such subchapter
C shall be taken into account in the manner
provided by section 6242.
``SEC. 6241. PARTNER'S RETURN MUST BE CONSISTENT WITH PARTNERSHIP
RETURN.
``(a) General Rule.--A partner of any electing large
partnership shall, on the partner's return, treat each
partnership item attributable to such partnership in a manner
which is consistent with the treatment of such partnership item
on the partnership return.
``(b) Underpayment Due to Inconsistent Treatment Assessed
as Math Error.--Any underpayment of tax by a partner by reason
of failing to comply with the requirements of subsection (a)
shall be assessed and collected in the same manner as if such
underpayment were on account of a mathematical or clerical
error appearing on the partner's return. Paragraph (2) of
section 6213(b) shall not apply to any assessment of an
underpayment referred to in the preceding sentence.
``(c) Adjustments Not To Affect Prior Year of Partners.--
``(1) In general.--Except as provided in paragraph
(2), subsections (a) and (b) shall apply without regard
to any adjustment to the partnership item under part
II.
``(2) Certain changes in distributive share taken
into account by partner.--
``(A) In general.--To the extent that any
adjustment under part II involves a change
under section 704 in a partner's distributive
share of the amount of any partnership item
shown on the partnership return, such
adjustment shall be taken into account in
applying this title to such partner for the
partner's taxable year for which such item was
required to be taken into account.
``(B) Coordination with deficiency
procedures.--
``(i) In general.--Subchapter B
shall not apply to the assessment or
collection of any underpayment of tax
attributable to an adjustment referred
to in subparagraph (A).
``(ii) Adjustment not precluded.--
Notwithstanding any other law or rule
of law, nothing in subchapter B (or in
any proceeding under subchapter B)
shall preclude the assessment or
collection of any underpayment of tax
(or the allowance of any credit or
refund of any overpayment of tax)
attributable to an adjustment referred
to in subparagraph (A) and such
assessment or collection or allowance
(or any notice thereof) shall not
preclude any notice, proceeding, or
determination under subchapter B.
``(C) Period of limitations.--The period
for--
``(i) assessing any underpayment of
tax, or
``(ii) filing a claim for credit or
refund of any overpayment of tax,
attributable to an adjustment referred to in
subparagraph (A) shall not expire before the
close of the period prescribed by section 6248
for making adjustments with respect to the
partnership taxable year involved.
``(D) Tiered structures.--If the partner
referred to in subparagraph (A) is another
partnership or an S corporation, the rules of
this paragraph shall also apply to persons
holding interests in such partnership or S
corporation (as the case may be); except that,
if such partner is an electing large
partnership, the adjustment referred to in
subparagraph (A) shall be taken into account in
the manner provided by section 6242.
``(d) Addition to Tax for Failure to Comply With Section.--
``For addition to tax in case of partner's disregard of
requirements of this section, see part II of subchapter A of
chapter 68.
``SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP ADJUSTMENTS INTO
ACCOUNT.
``(a) Adjustments Flow Through To Partners for Year in
Which Adjustment Takes Effect.--
``(1) In general.--If any partnership adjustment
with respect to any partnership item takes effect
(within the meaning of subsection (d)(2)) during any
partnership taxable year and if an election under
paragraph (2) does not apply to such adjustment, such
adjustment shall be taken into account in determining
the amount of such item for the partnership taxable
year in which such adjustment takes effect. In applying
this title to any person who is (directly or
indirectly) a partner in such partnership during such
partnership taxable year, such adjustment shall be
treated as an item actually arising during such taxable
year.
``(2) Partnership liable in certain cases.--If--
``(A) a partnership elects under this
paragraph to not take an adjustment into
account under paragraph (1),
``(B) a partnership does not make such an
election but in filing its return for any
partnership taxable year fails to take fully
into account any partnership adjustment as
required under paragraph (1), or
``(C) any partnership adjustment involves a
reduction in a credit which exceeds the amount
of such credit determined for the partnership
taxable year in which the adjustment takes
effect,
the partnership shall pay to the Secretary an amount
determined by applying the rules of subsection (b)(4)
to the adjustments not so taken into account and any
excess referred to in subparagraph (C).
``(3) Offsetting adjustments taken into account.--
If a partnership adjustment requires another adjustment
in a taxable year after the adjusted year and before
the partnership taxable year in which such partnership
adjustment takes effect, such other adjustment shall be
taken into account under this subsection for the
partnership taxable year in which such partnership
adjustment takes effect.
``(4) Coordination with part ii.--Amounts taken
into account under this subsection for any partnership
taxable year shall continue to be treated as
adjustments for the adjusted year for purposes of
determining whether such amounts may be readjusted
under part II.
``(b) Partnership Liable for Interest and Penalties.--
``(1) In general.--If a partnership adjustment
takes effect during any partnership taxable year and
such adjustment results in an imputed underpayment for
the adjusted year, the partnership--
``(A) shall pay to the Secretary interest
computed under paragraph (2), and
``(B) shall be liable for any penalty,
addition to tax, or additional amount as
provided in paragraph (3).
``(2) Determination of amount of interest.--The
interest computed under this paragraph with respect to
any partnership adjustment is the interest which would
be determined under chapter 67--
``(A) on the imputed underpayment
determined under paragraph (4) with respect to
such adjustment,
``(B) for the period beginning on the day
after the return due date for the adjusted year
and ending on the return due date for the
partnership taxable year in which such
adjustment takes effect (or, if earlier, in the
case of any adjustment to which subsection
(a)(2) applies, the date on which the payment
under subsection (a)(2) is made).
Proper adjustments in the amount determined under the
preceding sentence shall be made for adjustments
required for partnership taxable years after the
adjusted year and before the year in which the
partnership adjustment takes effect by reason of such
partnership adjustment.
``(3) Penalties.--A partnership shall be liable for
any penalty, addition to tax, or additional amount for
which it would have been liable if such partnership had
been an individual subject to tax under chapter 1 for
the adjusted year and the imputed underpayment
determined under paragraph (4) were an actual
underpayment (or understatement) for such year.
``(4) Imputed underpayment.--For purposes of this
subsection, the imputed underpayment determined under
this paragraph with respect to any partnership
adjustment is the underpayment (if any) which would
result--
``(A) by netting all adjustments to items
of income, gain, loss, or deduction and by
treating any net increase in income as an
underpayment equal to the amount of such net
increase multiplied by the highest rate of tax
in effect under section 1 or 11 for the
adjusted year, and
``(B) by taking adjustments to credits into
account as increases or decreases (whichever is
appropriate) in the amount of tax.
For purposes of the preceding sentence, any net
decrease in a loss shall be treated as an increase in
income and a similar rule shall apply to a net increase
in a loss.
``(c) Administrative Provisions.--
``(1) In general.--Any payment required by
subsection (a)(2) or (b)(1)(A)--
``(A) shall be assessed and collected in
the same manner as if it were a tax imposed by
subtitle C, and
``(B) shall be paid on or before the return
due date for the partnership taxable year in
which the partnership adjustment takes effect.
``(2) Interest.--For purposes of determining
interest, any payment required by subsection (a)(2) or
(b)(1)(A) shall be treated as an underpayment of tax.
``(3) Penalties.--
``(A) In general.--In the case of any
failure by any partnership to pay on the date
prescribed therefor any amount required by
subsection (a)(2) or (b)(1)(A), there is hereby
imposed on such partnership a penalty of 10
percent of the underpayment. For purposes of
the preceding sentence, the term `underpayment'
means the excess of any payment required under
this section over the amount (if any) paid on
or before the date prescribed therefor.
``(B) Accuracy-related and fraud penalties
made applicable.--For purposes of part II of
subchapter A of chapter 68, any payment
required by subsection (a)(2) shall be treated
as an underpayment of tax.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Partnership adjustment.--The term
`partnership adjustment' means any adjustment in the
amount of any partnership item of an electing large
partnership.
``(2) When adjustment takes effect.--A partnership
adjustment takes effect--
``(A) in the case of an adjustment pursuant
to the decision of a court in a proceeding
brought under part II, when such decision
becomes final,
``(B) in the case of an adjustment pursuant
to any administrative adjustment request under
section 6251, when such adjustment is allowed
by the Secretary, or
``(C) in any other case, when such
adjustment is made.
``(3) Adjusted year.--The term `adjusted year'
means the partnership taxable year to which the item
being adjusted relates.
``(4) Return due date.--The term `return due date'
means, with respect to any taxable year, the date
prescribed for filing the partnership return for such
taxable year (determined without regard to extensions).
``(5) Adjustments involving changes in character.--
Under regulations, appropriate adjustments in the
application of this section shall be made for purposes
of taking into account partnership adjustments which
involve a change in the character of any item of
income, gain, loss, or deduction.
``(e) Payments Nondeductible.--No deduction shall be
allowed under subtitle A for any payment required to be made by
an electing large partnership under this section.
``PART II--PARTNERSHIP LEVEL ADJUSTMENTS
``Subpart A. Adjustments by Secretary.
``Subpart B. Claims for adjustments by partnership.
``Subpart A--Adjustments by Secretary
``Sec. 6245. Secretarial authority.
``Sec. 6246. Restrictions on partnership adjustments.
``Sec. 6247. Judicial review of partnership adjustment.
``Sec. 6248. Period of limitations for making adjustments.
``SEC. 6245. SECRETARIAL AUTHORITY.
``(a) General Rule.--The Secretary is authorized and
directed to make adjustments at the partnership level in any
partnership item to the extent necessary to have such item be
treated in the manner required.
``(b) Notice of Partnership Adjustment.--
``(1) In general.--If the Secretary determines that
a partnership adjustment is required, the Secretary is
authorized to send notice of such adjustment to the
partnership by certified mail or registered mail. Such
notice shall be sufficient if mailed to the partnership
at its last known address even if the partnership has
terminated its existence.
``(2) Further notices restricted.--If the Secretary
mails a notice of a partnership adjustment to any
partnership for any partnership taxable year and the
partnership files a petition under section 6247 with
respect to such notice, in the absence of a showing of
fraud, malfeasance, or misrepresentation of a material
fact, the Secretary shall not mail another such notice
to such partnership with respect to such taxable year.
``(3) Authority to rescind notice with partnership
consent.--The Secretary may, with the consent of the
partnership, rescind any notice of a partnership
adjustment mailed to such partnership. Any notice so
rescinded shall not be treated as a notice of a
partnership adjustment, for purposes of this section,
section 6246, and section 6247, and the taxpayer shall
have no right to bring a proceeding under section 6247
with respect to such notice. Nothing in this subsection
shall affect any suspension of the running of any
period of limitations during any periodany period
during which the rescinded notice was outstanding.
``SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUSTMENTS.
``(a) General Rule.--Except as otherwise provided in this
chapter, no adjustment to any partnership item may be made (and
no levy or proceeding in any court for the collection of any
amount resulting from such adjustment may be made, begun or
prosecuted) before--
``(1) the close of the 90th day after the day on
which a notice of a partnership adjustment was mailed
to the partnership, and
``(2) if a petition is filed under section 6247
with respect to such notice, the decision of the court
has become final.
``(b) Premature Action May Be Enjoined.--Notwithstanding
section 7421(a), any action which violates subsection (a) may
be enjoined in the proper court, including the Tax Court. The
Tax Court shall have no jurisdiction to enjoin any action under
this subsection unless a timely petition has been filed under
section 6247 and then only in respect of the adjustments that
are the subject of such petition.
``(c) Exceptions to Restrictions on Adjustments.--
``(1) Adjustments arising out of math or clerical
errors.--
``(A) In general.--If the partnership is
notified that, on account of a mathematical or
clerical error appearing on the partnership
return, an adjustment to a partnership item is
required, rules similar to the rules of
paragraphs (1) and (2) of section 6213(b) shall
apply to such adjustment.
``(B) Special rule.--If an electing large
partnership is a partner in another electing
large partnership, any adjustment on account of
such partnership's failure to comply with the
requirements of section 6241(a) with respect to
its interest in such other partnership shall be
treated as an adjustment referred to in
subparagraph (A), except that paragraph (2) of
section 6213(b) shall not apply to such
adjustment.
``(2) Partnership may waive restrictions.--The
partnership shall at any time (whether or not a notice
of partnership adjustment has been issued) have the
right, by a signed notice in writing filed with the
Secretary, to waive the restrictions provided in
subsection (a) on the making of any partnership
adjustment.
``(d) Limit Where No Proceeding Begun.--If no proceeding
under section 6247 is begun with respect to any notice of a
partnership adjustment during the 90-day period described in
subsection (a), the amount for which the partnership is liable
under section 6242 (and any increase in any partner's liability
for tax under chapter 1 by reason of any adjustment under
section 6242(a)) shall not exceed the amount determined in
accordance with such notice.
``SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUSTMENT.
``(a) General Rule.--Within 90 days after the date on which
a notice of a partnership adjustment is mailed to the
partnership with respect to any partnership taxable year, the
partnership may file a petition for a readjustment of the
partnership items for such taxable year with--
``(1) the Tax Court,
``(2) the district court of the United States for
the district in which the partnership's principal place
of business is located, or
``(3) the Claims Court.
``(b) Jurisdictional Requirement for Bringing Action in
District Court or Claims Court.--
``(1) In general.--A readjustment petition under
this section may be filed in a district court of the
United States or the Claims Court only if the
partnership filing the petition deposits with the
Secretary, on or before the date the petition is filed,
the amount for which the partnership would be liable
under section 6242(b) (as of the date of the filing of
the petition) if the partnership items were adjusted as
provided by the notice of partnership adjustment. The
court may by order provide that the jurisdictional
requirements of this paragraph are satisfied where
there has been a good faith attempt to satisfy such
requirement and any shortfall of the amount required to
be deposited is timely corrected.
``(2) Interest payable.--Any amount deposited under
paragraph (1), while deposited, shall not be treated as
a payment of tax for purposes of this title (other than
chapter 67).
``(c) Scope of Judicial Review.--A court with which a
petition is filed in accordance with this section shall have
jurisdiction to determine all partnership items of the
partnership for the partnership taxable year to which the
notice of partnership adjustment relates and the proper
allocation of such items among the partners (and the
applicability of any penalty, addition to tax, or additional
amount for which the partnership may be liable under section
6242(b)).
``(d) Determination of Court Reviewable.--Any determination
by a court under this section shall have the force and effect
of a decision of the Tax Court or a final judgment or decree of
the district court or the Claims Court, as the case may be, and
shall be reviewable as such. The date of any such determination
shall be treated as being the date of the court's order
entering the decision.
``(e) Effect of Decision Dismissing Action.--If an action
brought under this section is dismissed other than by reason of
a rescission under section 6245(b)(3), the decision of the
court dismissing the action shall be considered as its decision
that the notice of partnership adjustment is correct, and an
appropriate order shall be entered in the records of the court.
``SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUSTMENTS.
``(a) General Rule.--Except as otherwise provided in this
section, no adjustment under this subpart to any partnership
item for any partnership taxable year may be made after the
date which is 3 years after the later of--
``(1) the date on which the partnership return for
such taxable year was filed, or
``(2) the last day for filing such return for such
year (determined without regard to extensions).
``(b) Extension by Agreement.--The period described in
subsection (a) (including an extension period under this
subsection) may be extended by an agreement entered into by the
Secretary and the partnership before the expiration of such
period.
``(c) Special Rule in Case of Fraud, Etc.--
``(1) False return.--In the case of a false or
fraudulent partnership return with intent to evade tax,
the adjustment may be made at any time.
``(2) Substantial omission of income.--If any
partnership omits from gross income an amount properly
includible therein which is in excess of 25 percent of
the amount of gross income stated in its return,
subsection (a) shall be applied by substituting `6
years' for `3 years'.
``(3) No return.--In the case of a failure by a
partnership to file a return for any taxable year, the
adjustment may be made at any time.
``(4) Return filed by secretary.--For purposes of
this section, a return executed by the Secretary under
subsection (b) of section 6020 on behalf of the
partnership shall not be treated as a return of the
partnership.
``(d) Suspension When Secretary Mails Notice of
Adjustment.--If notice of a partnership adjustment with respect
to any taxable year is mailed to the partnership, the running
of the period specified in subsection (a) (as modified by the
other provisions of this section) shall be suspended--
``(1) for the period during which an action may be
brought under section 6247 (and, if a petition is filed
under section 6247 with respect to such notice, until
the decision of the court becomes final), and
``(2) for 1 year thereafter.
``Subpart B--Claims for Adjustments by Partnership
``Sec. 6251. Administrative adjustment requests.
``Sec. 6252. Judicial review where administrative adjustment
request is not allowed in full.
``SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.
``(a) General Rule.--A partnership may file a request for
an administrative adjustment of partnership items for any
partnership taxable year at any time which is--
``(1) within 3 years after the later of--
``(A) the date on which the partnership
return for such year is filed, or
``(B) the last day for filing the
partnership return for such year (determined
without regard to extensions), and
``(2) before the mailing to the partnership of a
notice of a partnership adjustment with respect to such
taxable year.
``(b) Secretarial Action.--If a partnership files an
administrative adjustment request under subsection (a), the
Secretary may allow any part of the requested adjustments.
``(c) Special Rule in Case of Extension Under Section
6248.--If the period described in section 6248(a) is extended
pursuant to an agreement under section 6248(b), the period
prescribed by subsection (a)(1) shall not expire before the
date 6 months after the expiration of the extension under
section 6248(b).
``SEC. 6252. JUDICIAL REVIEW WHERE ADMINISTRATIVE ADJUSTMENT REQUEST IS
NOT ALLOWED IN FULL.
``(a) In General.--If any part of an administrative
adjustment request filed under section 6251 is not allowed by
the Secretary, the partnership may file a petition for an
adjustment with respect to the partnership items to which such
part of the request relates with--
``(1) the Tax Court,
``(2) the district court of the United States for
the district in which the principal place of business
of the partnership is located, or
``(3) the Claims Court.
``(b) Period for Filing Petition.--A petition may be filed
under subsection (a) with respect to partnership items for a
partnership taxable year only--
``(1) after the expiration of 6 months from the
date of filing of the request under section 6251, and
``(2) before the date which is 2 years after the
date of such request.
The 2-year period set forth in paragraph (2) shall be extended
for such period as may be agreed upon in writing by the
partnership and the Secretary.
``(c) Coordination With Subpart A.--
``(1) Notice of partnership adjustment before
filing of petition.--No petition may be filed under
this section after the Secretary mails to the
partnership a notice of a partnership adjustment for
the partnership taxable year to which the request under
section 6251 relates.
``(2) Notice of partnership adjustment after filing
but before hearing of petition.--If the Secretary mails
to the partnership a notice of a partnership adjustment
for the partnership taxable year to which the request
under section 6251 relates after the filing of a
petition under this subsection but before the hearing
of such petition, such petition shall be treated as an
action brought under section 6247 with respect to such notice, except
that subsection (b) of section 6247 shall not apply.
``(3) Notice must be before expiration of statute
of limitations.--A notice of a partnership adjustment
for the partnership taxable year shall be taken into
account under paragraphs (1) and (2) only if such
notice is mailed before the expiration of the period
prescribed by section 6248 for making adjustments to
partnership items for such taxable year.
``(d) Scope of Judicial Review.--Except in the case
described in paragraph (2) of subsection (c), a court with
which a petition is filed in accordance with this section shall
have jurisdiction to determine only those partnership items to
which the part of the request under section 6251 not allowed by
the Secretary relates and those items with respect to which the
Secretary asserts adjustments as offsets to the adjustments
requested by the partnership.
``(e) Determination of Court Reviewable.--Any determination
by a court under this section shall have the force and effect
of a decision of the Tax Court or a final judgment or decree of
the district court or the Claims Court, as the case may be, and
shall be reviewable as such. The date of any such determination
shall be treated as being the date of the court's order
entering the decision.
``PART III--DEFINITIONS AND SPECIAL RULES
``Sec. 6255. Definitions and special rules.
``SEC. 6255. DEFINITIONS AND SPECIAL RULES.
``(a) Definitions.--For purposes of this subchapter--
``(1) Electing large partnership.--The term
`electing large partnership' has the meaning given to
such term by section 775.
``(2) Partnership item.--The term `partnership
item' has the meaning given to such term by section
6231(a)(3).
``(b) Partners Bound by Actions of Partnership, Etc.--
``(1) Designation of partner.--Each electing large
partnership shall designate (in the manner prescribed
by the Secretary) a partner (or other person) who shall
have the sole authority to act on behalf of such
partnership under this subchapter. In any case in which
such a designation is not in effect, the Secretary may
select any partner as the partner with such authority.
``(2) Binding effect.--An electing large
partnership and all partners of such partnership shall
be bound--
``(A) by actions taken under this
subchapter by the partnership, and
``(B) by any decision in a proceeding
brought under this subchapter.
``(c) Partnerships Having Principal Place of Business
Outside the United States.--For purposes of sections 6247 and
6252, a principal place of business located outside the United
States shall be treated as located in the District of Columbia.
``(d) Treatment Where Partnership Ceases To Exist.--If a
partnership ceases to exist before a partnership adjustment
under this subchapter takes effect, such adjustment shall be
taken into account by the former partners of such partnership
under regulations prescribed by the Secretary.
``(e) Date Decision Becomes Final.--For purposes of this
subchapter, the principles of section 7481(a) shall be applied
in determining the date on which a decision of a district court
or the Claims Court becomes final.
``(f) Partnerships in Cases Under Title 11 of the United
States Code.--
``(1) Suspension of period of limitations on making
adjustment, assessment, or collection.--The running of
any period of limitations provided in this subchapter
on making a partnership adjustment (or provided by
section 6501 or 6502 on the assessment or collection of
any amount required to be paid under section 6242)
shall, in a case under title 11 of the United States
Code, be suspended during the period during which the
Secretary is prohibited by reason of such case from
making the adjustment (or assessment or collection)
and--
``(A) for adjustment or assessment, 60 days
thereafter, and
``(B) for collection, 6 months thereafter.
A rule similar to the rule of section 6213(f)(2) shall
apply for purposes of section 6246.
``(2) Suspension of period of limitation for filing
for judicial review.--The running of the period
specified in section 6247(a) or 6252(b) shall, in a
case under title 11 of the United States Code, be
suspended during the period during which the
partnership is prohibited by reason of such case from
filing a petition under section 6247 or 6252 and for 60
days thereafter.
``(g) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions of
this subchapter, including regulations--
``(1) to prevent abuse through manipulation of the
provisions of this subchapter, and
``(2) providing that this subchapter shall not
apply to any case described in section 6231(c)(1) (or
the regulations prescribed thereunder) where the
application of this subchapter to such a case would
interfere with the effective and efficient enforcement
of this title.
In any case to which this subchapter does not apply by reason
of paragraph (2), rules similar to the rules of sections
6229(f) and 6255(f) shall apply.''.
(b) Conforming Amendments.--
(1) Subsection (a) of section 7421 is amended by
inserting ``6246(b),'' after ``6213(a),''.
(2) Subsection (c) of section 7459 is amended by
striking ``or section 6228(a)'' and inserting ``,
6228(a), 6247, or 6252''.
(3) Subparagraph (E) of section 7482(b)(1) is
amended by striking ``or 6228(a)'' and inserting ``,
6228(a), 6247, or 6252''.
(4)(A) The text of section 7485(b) is amended by
striking ``or 6228(a)'' and inserting ``, 6228(a),
6247, or 6252''.
(B) The subsection heading for section 7485(b) is
amended to read as follows:
``(b) Bond in Case of Appeal of Certain Partnership-Related
Decisions.--''.
(c) Clerical Amendment.--The table of subchapters for
chapter 63 is amended by adding at the end thereof the
following new item:
``Subchapter D. Treatment of electing large partnerships.''.
SEC. 1223. DUE DATE FOR FURNISHING INFORMATION TO PARTNERS OF ELECTING
LARGE PARTNERSHIPS.
(a) General Rule.--Subsection (b) of section 6031 (relating
to copies to partners) is amended by adding at the end the
following new sentence: ``In the case of an electing large
partnership (as defined in section 775), such information shall
be furnished on or before the first March 15 following the
close of such taxable year.''.
(b) Treatment as Information Return.--Section 6724 is
amended by adding at the end the following new subsection:
``(e) Special Rule for Certain Partnership Returns.--If any
partnership return under section 6031(a) is required under
section 6011(e) to be filed on magnetic media or in other
machine-readable form, for purposes of this part, each schedule
required to be included with such return with respect to each
partner shall be treated as a separate information return.''.
SEC. 1224. RETURNS REQUIRED ON MAGNETIC MEDIA.
Paragraph (2) of section 6011(e) (relating to returns on
magnetic media) is amended by adding at the end thereof the
following new sentence:
``Notwithstanding the preceding sentence, the Secretary
shall require partnerships having more than 100
partners to file returns on magnetic media.''.
SEC. 1225. TREATMENT OF PARTNERSHIP ITEMS OF INDIVIDUAL RETIREMENT
ACCOUNTS.
Subsection (b) of section 6012 is amended by adding at the
end thereof the following new paragraph:
``(6) IRA share of partnership income.--In the case
of a trust which is exempt from taxation under section
408(e), for purposes of this section, the trust's
distributive share of items of gross income and gain of
any partnership to which subchapter C or D of chapter
63 applies shall be treated as equal to the trust's
distributive share of the taxable income of such
partnership.''.
SEC. 1226. EFFECTIVE DATE.
The amendments made by this part shall apply to partnership
taxable years ending on or after December 31, 1997.
PART II--PROVISIONS RELATED TO TEFRA PARTNERSHIP PROCEEDINGS
SEC. 1231. TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY PROCEEDINGS.
(a) In General.--Subchapter C of chapter 63 is amended by
adding at the end the following new section:
``SEC. 6234. DECLARATORY JUDGMENT RELATING TO TREATMENT OF ITEMS OTHER
THAN PARTNERSHIP ITEMS WITH RESPECT TO AN
OVERSHELTERED RETURN.
``(a) General Rule.--If--
``(1) a taxpayer files an oversheltered return for
a taxable year,
``(2) the Secretary makes a determination with
respect to the treatment of items (other than
partnership items) of such taxpayer for such taxable
year, and
``(3) the adjustments resulting from such
determination do not give rise to a deficiency (as
defined in section 6211) but would give rise to a
deficiency if there were no net loss from partnership
items,
the Secretary is authorized to send a notice of adjustment
reflecting such determination to the taxpayer by certified or
registered mail.
``(b) Oversheltered Return.--For purposes of this section,
the term `oversheltered return' means an income tax return
which--
``(1) shows no taxable income for the taxable year,
and
``(2) shows a net loss from partnership items.
``(c) Judicial Review in the Tax Court.--Within 90 days, or
150 days if the notice is addressed to a person outside the
United States, after the day on which the notice of adjustment
authorized in subsection (a) is mailed to the taxpayer, the
taxpayer may file a petition with the Tax Court for
redetermination of the adjustments. Upon the filing of such a
petition, the Tax Court shall have jurisdiction to make a
declaration with respect to all items (other than partnership
items and affected items which require partner level
determinations as described in section 6230(a)(2)(A)(i)) for
the taxable year to which the notice of adjustment relates, in
accordance with the principles of section 6214(a). Any such
declaration shall have the force and effect of a decision of
the Tax Court and shall be reviewable as such.
``(d) Failure To File Petition.--
``(1) In general.--Except as provided in paragraph
(2), if the taxpayer does not file a petition with the
Tax Court within the time prescribed in subsection (c),
the determination of the Secretary set forth in the
notice of adjustment that was mailed to the taxpayer
shall be deemed to be correct.
``(2) Exception.--Paragraph (1) shall not apply
after the date that the taxpayer--
``(A) files a petition with the Tax Court
within the time prescribed in subsection (c)
with respect to a subsequent notice of
adjustment relating to the same taxable year,
or
``(B) files a claim for refund of an
overpayment of tax under section 6511 for the
taxable year involved.
If a claim for refund is filed by the taxpayer, then
solely for purposes of determining (for the taxable
year involved) the amount of any computational
adjustment in connection with a partnership proceeding
under this subchapter (other than under this section)
or the amount of any deficiency attributable to
affected items in a proceeding under section
6230(a)(2), the items that are the subject of the
notice of adjustment shall be presumed to have been
correctly reported on the taxpayer's return during the
pendency of the refund claim (and, if within the time
prescribed by section 6532 the taxpayer commences a
civil action for refund under section 7422, until the
decision in the refund action becomes final).
``(e) Limitations Period.--
``(1) In general.--Any notice to a taxpayer under
subsection (a) shall be mailed before the expiration of
the period prescribed by section 6501 (relating to the
period of limitations on assessment).
``(2) Suspension when secretary mails notice of
adjustment.--If the Secretary mails a notice of
adjustment to the taxpayer for a taxable year, the
period of limitations on the making of assessments
shall be suspended for the period during which the
Secretary is prohibited from making the assessment
(and, in any event, if a proceeding in respect of the
notice of adjustment is placed on the docket of the Tax
Court, until the decision of the Tax Court becomes
final), and for 60 days thereafter.
``(3) Restrictions on assessment.--Except as
otherwise provided in section 6851, 6852, or 6861, no
assessment of a deficiency with respect to any tax
imposed by subtitle A attributable to any item (other
than a partnership item or any item affected by a partnership item)
shall be made--
``(A) until the expiration of the
applicable 90-day or 150-day period set forth
in subsection (c) for filing a petition with
the Tax Court, or
``(B) if a petition has been filed with the
Tax Court, until the decision of the Tax Court
has become final.
``(f) Further Notices of Adjustment Restricted.--If the
Secretary mails a notice of adjustment to the taxpayer for a
taxable year and the taxpayer files a petition with the Tax
Court within the time prescribed in subsection (c), the
Secretary may not mail another such notice to the taxpayer with
respect to the same taxable year in the absence of a showing of
fraud, malfeasance, or misrepresentation of a material fact.
``(g) Coordination With Other Proceedings Under This
Subchapter.--
``(1) In general.--The treatment of any item that
has been determined pursuant to subsection (c) or (d)
shall be taken into account in determining the amount
of any computational adjustment that is made in
connection with a partnership proceeding under this
subchapter (other than under this section), or the
amount of any deficiency attributable to affected items
in a proceeding under section 6230(a)(2), for the
taxable year involved. Notwithstanding any other law or
rule of law pertaining to the period of limitations on
the making of assessments, for purposes of the
preceding sentence, any adjustment made in accordance
with this section shall be taken into account
regardless of whether any assessment has been made with
respect to such adjustment.
``(2) Special rule in case of computational
adjustment.--In the case of a computational adjustment
that is made in connection with a partnership
proceeding under this subchapter (other than under this
section), the provisions of paragraph (1) shall apply
only if the computational adjustment is made within the
period prescribed by section 6229 for assessing any tax
under subtitle A which is attributable to any
partnership item or affected item for the taxable year
involved.
``(3) Conversion to deficiency proceeding.--If--
``(A) after the notice referred to in
subsection (a) is mailed to a taxpayer for a
taxable year but before the expiration of the
period for filing a petition with the Tax Court
under subsection (c) (or, if a petition is
filed with the Tax Court, before the Tax Court
makes a declaration for that taxable year), the
treatment of any partnership item for the
taxable year is finally determined, or any such
item ceases to be a partnership item pursuant
to section 6231(b), and
``(B) as a result of that final
determination or cessation, a deficiency can be
determined with respect to the items that are
the subject of the notice of adjustment,
the notice of adjustment shall be treated as a notice
of deficiency under section 6212 and any petition filed
in respect of the notice shall be treated as an action
brought under section 6213.
``(4) Finally determined.--For purposes of this
subsection, the treatment of partnership items shall be
treated as finally determined if--
``(A) the Secretary enters into a
settlement agreement (within the meaning of
section 6224) with the taxpayer regarding such
items,
``(B) a notice of final partnership
administrative adjustment has been issued and--
``(i) no petition has been filed
under section 6226 and the time for
doing so has expired, or
``(ii) a petition has been filed
under section 6226 and the decision of
the court has become final, or
``(C) the period within which any tax
attributable to such items may be assessed
against the taxpayer has expired.
``(h) Special Rules if Secretary Incorrectly Determines
Applicable Procedure.--
``(1) Special rule if secretary erroneously mails
notice of adjustment.--If the Secretary erroneously
determines that subchapter B does not apply to a
taxable year of a taxpayer and consistent with that
determination timely mails a notice of adjustment to
the taxpayer pursuant to subsection (a) of this
section, the notice of adjustment shall be treated as a
notice of deficiency under section 6212 and any
petition that is filed in respect of the notice shall
be treated as an action brought under section 6213.
``(2) Special rule if secretary erroneously mails
notice of deficiency.--If the Secretary erroneously
determines that subchapter B applies to a taxable year
of a taxpayer and consistent with that determination
timely mails a notice of deficiency to the taxpayer
pursuant to section 6212, the notice of deficiency
shall be treated as a notice of adjustment under
subsection (a) and any petition that is filed in
respect of the notice shall be treated as an action
brought under subsection (c).''.
(b) Treatment of Partnership Items in Deficiency
Proceedings.--Section 6211 (defining deficiency) is amended by
adding at the end the following new subsection:
``(c) Coordination With Subchapter C.--In determining the
amount of any deficiency for purposes of this subchapter,
adjustments to partnership items shall be made only as provided
in subchapter C.''.
(c) Clerical Amendment.--The table of sections for
subchapter C of chapter 63 is amended by adding at the end the
following new item:
``Sec. 6234. Declaratory judgment relating to treatment of items
other than partnership items with respect to an
oversheltered return.''.
(d) Effective Date.--The amendments made by this section
shall apply to partnership taxable years ending after the date
of the enactment of this Act.
SEC. 1232. PARTNERSHIP RETURN TO BE DETERMINATIVE OF AUDIT PROCEDURES
TO BE FOLLOWED.
(a) In General.--Section 6231 (relating to definitions and
special rules) is amended by adding at the end the following
new subsection:
``(g) Partnership Return To Be Determinative of Whether
Subchapter Applies.--
``(1) Determination that subchapter applies.--If,
on the basis of a partnership return for a taxable
year, the Secretary reasonably determines that this
subchapter applies to such partnership for such year
but such determination is erroneous, then the
provisions of this subchapter are hereby extended to
such partnership (and its items) for such taxable year
and to partners of such partnership.
``(2) Determination that subchapter does not
apply.--If, on the basis of a partnership return for a
taxable year, the Secretary reasonably determines that
this subchapter does not apply to such partnership for
such year but such determination is erroneous, then the
provisions of this subchapter shall not apply to such
partnership (and its items) for such taxable year or to
partners of such partnership.''.
(b) Effective Date.--The amendment made by this section
shall apply to partnership taxable years ending after the date
of the enactment of this Act.
SEC. 1233. PROVISIONS RELATING TO STATUTE OF LIMITATIONS.
(a) Suspension of Statute Where Untimely Petition Filed.--
Paragraph (1) of section 6229(d) (relating to suspension where
Secretary makes administrative adjustment) is amended by
striking all that follows ``section 6226'' and inserting the
following: ``(and, if a petition is filed under section 6226
with respect to such administrative adjustment, until the
decision of the court becomes final), and''.
(b) Suspension of Statute During Bankruptcy Proceeding.--
Section 6229 is amended by adding at the end the following new
subsection:
``(h) Suspension During Pendency of Bankruptcy
Proceeding.--If a petition is filed naming a partner as a
debtor in a bankruptcy proceeding under title 11 of the United
States Code, the running of the period of limitations provided
in this section with respect to such partner shall be
suspended--
``(1) for the period during which the Secretary is
prohibited by reason of such bankruptcy proceeding from
making an assessment, and
``(2) for 60 days thereafter.''.
(c) Tax Matters Partner in Bankruptcy.--Section 6229(b) is
amended by redesignating paragraph (2) as paragraph (3) and by
inserting after paragraph (1) the following new paragraph:
``(2) Special rule with respect to debtors in title
11 cases.--Notwithstanding any other law or rule of
law, if an agreement is entered into under paragraph
(1)(B) and the agreement is signed by a person who
would be the tax matters partner but for the fact that,
at the time that the agreement is executed, the person
is a debtor in a bankruptcy proceeding under title 11
of the United States Code, such agreement shall be
binding on all partners in the partnership unless the
Secretary has been notified of the bankruptcy
proceeding in accordance with regulations prescribed by
the Secretary.''.
(d) Effective Dates.--
(1) Subsections (a) and (b).--The amendments made
by subsections (a) and (b) shall apply to partnership
taxable years with respect to which the period under
section 6229 of the Internal Revenue Code of 1986 for
assessing tax has not expired on or before the date of
the enactment of this Act.
(2) Subsection (c).--The amendment made by
subsection (c) shall apply to agreements entered into
after the date of the enactment of this Act.
SEC. 1234. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.
(a) In General.--Clause (i) of section 6231(a)(1)(B)
(relating to exception for small partnerships) is amended to
read as follows:
``(i) In general.--The term
`partnership' shall not include any
partnership having 10 or fewer partners
each of whom is an individual (other
than a nonresident alien), a C
corporation, or an estate of a deceased
partner. For purposes of the preceding
sentence, a husband and wife (and their
estates) shall be treated as 1
partner.''.
(b) Effective Date.--The amendment made by this section
shall apply to partnership taxable years ending after the date
of the enactment of this Act.
SEC. 1235. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1-YEAR LIMITATION ON
ASSESSMENT.
(a) In General.--Subsection (f) of section 6229 (relating
to items becoming nonpartnership items) is amended--
(1) by striking ``(f) Items Becoming Nonpartnership
Items.--If'' and inserting the following:
``(f) Special Rules.--
``(1) Items becoming nonpartnership items.--If'',
(2) by moving the text of such subsection 2 ems to
the right, and
(3) by adding at the end the following new
paragraph:
``(2) Special rule for partial settlement
agreements.--If a partner enters into a settlement
agreement with the Secretary with respect to the
treatment of some of the partnership items in dispute
for a partnership taxable year but other partnership
items for such year remain in dispute, the period of
limitations for assessing any tax attributable to the
settled items shall be determined as if such agreement
had not been entered into.''.
(b) Effective Date.--The amendment made by this section
shall apply to settlements entered into after the date of the
enactment of this Act.
SEC. 1236. EXTENSION OF TIME FOR FILING A REQUEST FOR ADMINISTRATIVE
ADJUSTMENT.
(a) In General.--Section 6227 (relating to administrative
adjustment requests) is amended by redesignating subsections
(b) and (c) as subsections (c) and (d), respectively, and by
inserting after subsection (a) the following new subsection:
``(b) Special Rule in Case of Extension of Period of
Limitations Under Section 6229.--The period prescribed by
subsection (a)(1) for filing of a request for an administrative
adjustment shall be extended--
``(1) for the period within which an assessment may
be made pursuant to an agreement (or any extension
thereof) under section 6229(b), and
``(2) for 6 months thereafter.''.
(b) Effective Date.--The amendment made by this section
shall take effect as if included in the amendments made by
section 402 of the Tax Equity and Fiscal Responsibility Act of
1982.
SEC. 1237. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN CONTEXT OF
PARTNERSHIP PROCEEDINGS.
(a) In General.--Subsection (a) of section 6230 is amended
by adding at the end the following new paragraph:
``(3) Special rule in case of assertion by
partner's spouse of innocent spouse relief.--
``(A) Notwithstanding section 6404(b), if
the spouse of a partner asserts that section
6013(e) applies with respect to a liability
that is attributable to any adjustment to a
partnership item, then such spouse may file
with the Secretary within 60 days after the
notice of computational adjustment is mailed to
the spouse a request for abatement of the
assessment specified in such notice. Upon
receipt of such request, the Secretary shall
abate the assessment. Any reassessment of the
tax with respect to which an abatement is made
under this subparagraph shall be subject to the
deficiency procedures prescribed by subchapter
B. The period for making any such reassessment
shall not expire before the expiration of 60
days after the date of such abatement.
``(B) If the spouse files a petition with
the Tax Court pursuant to section 6213 with
respect to the request for abatement described
in subparagraph (A), the Tax Court shall only
have jurisdiction pursuant to this section to
determine whether the requirements of section
6013(e) have been satisfied. For purposes of
such determination, the treatment of
partnership items under the settlement, the
final partnership administrative adjustment, or
the decision of the court (whichever is
appropriate) that gave rise to the liability in
question shall be conclusive.
``(C) Rules similar to the rules contained
in subparagraphs (B) and (C) of paragraph (2)
shall apply for purposes of this paragraph.''.
(b) Claims for Refund.--Subsection (c) of section 6230 is
amended by adding at the end the following new paragraph:
``(5) Rules for seeking innocent spouse relief.--
``(A) In general.--The spouse of a partner
may file a claim for refund on the ground that
the Secretary failed to relieve the spouse
under section 6013(e) from a liability that is
attributable to an adjustment to a partnership
item.
``(B) Time for filing claim.--Any claim
under subparagraph (A) shall be filed within 6
months after the day on which the
Secretarymails to the spouse the notice of computational adjustment
referred to in subsection (a)(3)(A).
``(C) Suit if claim not allowed.--If the
claim under subparagraph (B) is not allowed,
the spouse may bring suit with respect to the
claim within the period specified in paragraph
(3).
``(D) Prior determinations are binding.--
For purposes of any claim or suit under this
paragraph, the treatment of partnership items
under the settlement, the final partnership
administrative adjustment, or the decision of
the court (whichever is appropriate) that gave
rise to the liability in question shall be
conclusive.''.
(c) Technical Amendments.--
(1) Paragraph (1) of section 6230(a) is amended by
striking ``paragraph (2)'' and inserting ``paragraph
(2) or (3)''.
(2) Subsection (a) of section 6503 is amended by
striking ``section 6230(a)(2)(A)'' and inserting
``paragraph (2)(A) or (3) of section 6230(a)''.
(d) Effective Date.--The amendments made by this section
shall take effect as if included in the amendments made by
section 402 of the Tax Equity and Fiscal Responsibility Act of
1982.
SEC. 1238. DETERMINATION OF PENALTIES AT PARTNERSHIP LEVEL.
(a) In General.--Section 6221 (relating to tax treatment
determined at partnership level) is amended by striking
``item'' and inserting ``item (and the applicability of any
penalty, addition to tax, or additional amount which relates to
an adjustment to a partnership item)''.
(b) Conforming Amendments.--
(1) Subsection (f) of section 6226 is amended--
(A) by striking ``relates and'' and
inserting ``relates,'', and
(B) by inserting before the period ``, and
the applicability of any penalty, addition to
tax, or additional amount which relates to an
adjustment to a partnership item''.
(2) Clause (i) of section 6230(a)(2)(A) is amended
to read as follows:
``(i) affected items which require
partner level determinations (other
than penalties, additions to tax, and
additional amounts that relate to
adjustments to partnership items),
or''.
(3)(A) Subparagraph (A) of section 6230(a)(3), as
added by section 1237, is amended by inserting
``(including any liability for any penalties, additions
to tax, or additional amounts relating to such
adjustment)'' after ``partnership item''.
(B) Subparagraph (B) of such section is amended by
inserting ``(and the applicability of any penalties,
additions to tax, or additional amounts)'' after
``partnership items''.
(C) Subparagraph (A) of section 6230(c)(5), as
added by section 1237, is amended by inserting before
the period ``(including any liability for any
penalties, additions to tax, or additional amounts
relating to such adjustment)''.
(D) Subparagraph (D) of section 6230(c)(5), as
added by section 1237, is amended by inserting ``(and
the applicability of any penalties, additions to tax,
or additional amounts)'' after ``partnership items''.
(4) Paragraph (1) of section 6230(c) is amended by
striking ``or'' at the end of subparagraph (A), by
striking the period at the end of subparagraph (B) and
inserting ``, or'', and by adding at the end the
following new subparagraph:
``(C) the Secretary erroneously imposed any
penalty, addition to tax, or additional amount
which relates to an adjustment to a partnership
item.''.
(5) So much of subparagraph (A) of section
6230(c)(2) as precedes ``shall be filed'' is amended to
read as follows:
``(A) Under paragraph (1) (a) or (c).--Any
claim under subparagraph (A) or (C) of
paragraph (1)''.
(6) Paragraph (4) of section 6230(c) is amended by
adding at the end the following: ``In addition, the
determination under the final partnership
administrative adjustment or under the decision of the
court (whichever is appropriate) concerning the
applicability of any penalty, addition to tax, or
additional amount which relates to an adjustment to a
partnership item shall also be conclusive.
Notwithstanding the preceding sentence, the partner
shall be allowed to assert any partner level defenses
that may apply or to challenge the amount of the
computational adjustment.''.
(c) Effective Date.--The amendments made by this section
shall apply to partnership taxable years ending after the date
of the enactment of this Act.
SEC. 1239. PROVISIONS RELATING TO COURT JURISDICTION, ETC.
(a) Tax Court Jurisdiction To Enjoin Premature Assessments
of Deficiencies Attributable to Partnership Items.--Subsection
(b) of section 6225 is amended by striking ``the proper
court.'' and inserting ``the proper court, including the Tax
Court. The Tax Court shall have no jurisdiction to enjoin any
action or proceeding under this subsection unless a timely
petition for a readjustment of the partnership items for the
taxable year has been filed and then only in respect of the
adjustments that are the subject of such petition.''.
(b) Jurisdiction To Consider Statute of Limitations With
Respect to Partners.--Paragraph (1) of section 6226(d) is
amended by adding at the end the following new sentence:
``Notwithstanding subparagraph (B), any person treated
under subsection (c) as a party to an action shall be
permitted to participate in such action (or file a
readjustment petition under subsection (b) or paragraph
(2) of this subsection) solely for the purpose of
asserting that the period of limitations for assessing
any tax attributable to partnership items has expired
with respect to such person, and the court having
jurisdiction of such action shall have jurisdiction to
consider such assertion.''.
(c) Tax Court Jurisdiction To Determine Overpayments
Attributable to Affected Items.--
(1) Paragraph (6) of section 6230(d) is amended by
striking ``(or an affected item)''.
(2) Paragraph (3) of section 6512(b) is amended by
adding at the end the following new sentence:
``In the case of a credit or refund relating to an
affected item (within the meaning of section
6231(a)(5)), the preceding sentence shall be applied by
substituting the periods under sections 6229 and
6230(d) for the periods under section 6511 (b)(2), (c),
and (d).''.
(d) Venue on Appeal.--
(1) Paragraph (1) of section 7482(b) is amended by
striking ``or'' at the end of subparagraph (D), by
striking the period at the end of subparagraph (E) and
inserting ``, or'', and by inserting after subparagraph
(E) the following new subparagraph:
``(F) in the case of a petition under
section 6234(c)--
``(i) the legal residence of the
petitioner if the petitioner is not a
corporation, and
``(ii) the place or office
applicable under subparagraph (B) if
the petitioner is a corporation.''.
(2) The last sentence of section 7482(b)(1) is
amended by striking ``or 6228(a)'' and inserting ``,
6228(a), or 6234(c)''.
(e) Other Provisions.--
(1) Subsection (c) of section 7459 is amended by
striking ``or section 6228(a)'' and inserting ``,
6228(a), or 6234(c)''.
(2) Subsection (o) of section 6501 is amended by
adding at the end the following new paragraph:
``(3) For declaratory judgment relating to
treatment of items other than partnership items with
respect to an oversheltered return, see section
6234.''.
(3) Subsection (a) of section 7421, as amended by
section 1222, is amended by inserting ``6225(b),''
after ``6213(a),''.
(f) Effective Date.--The amendments made by this section
shall apply to partnership taxable years ending after the date
of the enactment of this Act.
SEC. 1240. TREATMENT OF PREMATURE PETITIONS FILED BY NOTICE PARTNERS OR
5-PERCENT GROUPS.
(a) In General.--Subsection (b) of section 6226 (relating
to judicial review of final partnership administrative
adjustments) is amended by redesignating paragraph (5) as
paragraph (6) and by inserting after paragraph (4) the
following new paragraph:
``(5) Treatment of premature petitions.--If--
``(A) a petition for a readjustment of
partnership items for the taxable year involved
is filed by a notice partner (or a 5-percent
group) during the 90-day period described in
subsection (a), and
``(B) no action is brought under paragraph
(1) during the 60-day period described therein
with respect to such taxable year which is not
dismissed,
such petition shall be treated for purposes of
paragraph (1) as filed on the last day of such 60-day
period.''.
(b) Effective Date.--The amendment made by this section
shall apply to petitions filed after the date of the enactment
of this Act.
SEC. 1241. BONDS IN CASE OF APPEALS FROM CERTAIN PROCEEDING.
(a) In General.--Subsection (b) of section 7485 (relating
to bonds to stay assessment of collection) is amended--
(1) by inserting ``penalties,'' after ``any
interest,'', and
(2) by striking ``aggregate of such deficiencies''
and inserting ``aggregate liability of the parties to
the action''.
(b) Effective Date.--The amendment made by this section
shall take effect as if included in the amendments made by
section 402 of the Tax Equity and Fiscal Responsibility Act of
1982.
SEC. 1242. SUSPENSION OF INTEREST WHERE DELAY IN COMPUTATIONAL
ADJUSTMENT RESULTING FROM CERTAIN SETTLEMENTS.
(a) In General.--Subsection (c) of section 6601 (relating
to interest on underpayment, nonpayment, or extension of time
for payment, of tax) is amended by adding at the end the
following new sentence: ``In the case of a settlement under
section 6224(c) which results in the conversion of partnership
items to nonpartnership items pursuant to section
6231(b)(1)(C), the preceding sentence shall apply to a
computational adjustment resulting from such settlement in the
same manner as if such adjustmentwere a deficiency and such
settlement were a waiver referred to in the preceding sentence.''.
(b) Effective Date.--The amendment made by this section
shall apply to adjustments with respect to partnership taxable
years beginning after the date of the enactment of this Act.
SEC. 1243. SPECIAL RULES FOR ADMINISTRATIVE ADJUSTMENT REQUESTS WITH
RESPECT TO BAD DEBTS OR WORTHLESS SECURITIES.
(a) General Rule.--Section 6227 (relating to administrative
adjustment requests) is amended by adding at the end the
following new subsection:
``(e) Requests With Respect to Bad Debts or Worthless
Securities.--In the case of that portion of any request for an
administrative adjustment which relates to the deductibility by
the partnership under section 166 of a debt as a debt which
became worthless, or under section 165(g) of a loss from
worthlessness of a security, the period prescribed in
subsection (a)(1) shall be 7 years from the last day for filing
the partnership return for the year with respect to which such
request is made (determined without regard to extensions).''.
(b) Effective Date.--
(1) In general.--The amendment made by subsection
(a) shall take effect as if included in the amendments
made by section 402 of the Tax Equity and Fiscal
Responsibility Act of 1982.
(2) Treatment of requests filed before date of
enactment.--In the case of that portion of any request
(filed before the date of the enactment of this Act)
for an administrative adjustment which relates to the
deductibility of a debt as a debt which became
worthless or the deductibility of a loss from the
worthlessness of a security--
(A) paragraph (2) of section 6227(a) of the
Internal Revenue Code of 1986 shall not apply,
(B) the period for filing a petition under
section 6228 of the Internal Revenue Code of
1986 with respect to such request shall not
expire before the date 6 months after the date
of the enactment of this Act, and
(C) such a petition may be filed without
regard to whether there was a notice of the
beginning of an administrative proceeding or a
final partnership administrative adjustment.
PART III--PROVISION RELATING TO CLOSING OF PARTNERSHIP TAXABLE YEAR
WITH RESPECT TO DECEASED PARTNER, ETC.
SEC. 1246. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT TO DECEASED
PARTNER, ETC.
(a) General Rule.--Subparagraph (A) of section 706(c)(2)
(relating to disposition of entire interest) is amended to read
as follows:
``(A) Disposition of entire interest.--The
taxable year of a partnership shall close with
respect to a partner whose entire interest in
the partnership terminates (whether by reason
of death, liquidation, or otherwise).''.
(b) Clerical Amendment.--The paragraph heading for
paragraph (2) of section 706(c) is amended to read as follows:
``(2) Treatment of dispositions.--''.
(c) Effective Date.--The amendments made by this section
shall apply to partnership taxable years beginning after
December 31, 1997.
Subtitle D--Provisions Relating to Real Estate Investment Trusts
SEC. 1251. CLARIFICATION OF LIMITATION ON MAXIMUM NUMBER OF
SHAREHOLDERS.
(a) Rules Relating to Determination of Ownership.--
(1) Failure to issue shareholder demand letter not
to disqualify reit.--Section 857(a) (relating to
requirements applicable to real estate investment
trusts) is amended by striking paragraph (2) and by
redesignating paragraph (3) as paragraph (2).
(2) Shareholder demand letter requirement;
penalty.--Section 857 (relating to taxation of real
estate investment trusts and their beneficiaries) is
amended by redesignating subsection (f) as subsection
(g) and by inserting after subsection (e) the following
new subsection:
``(f) Real Estate Investment Trusts To Ascertain
Ownership.--
``(1) In general.--Each real estate investment
trust shall each taxable year comply with regulations
prescribed by the Secretary for the purposes of
ascertaining the actual ownership of the outstanding
shares, or certificates of beneficial interest, of such
trust.
``(2) Failure to comply.--
``(A) In general.--If a real estate
investment trust fails to comply with the
requirements of paragraph (1) for a taxable
year, such trust shall pay (on notice and
demand by the Secretary and in the same manner
as tax) a penalty of $25,000.
``(B) Intentional disregard.--If any
failure under paragraph (1) is due to
intentional disregard of the requirement under
paragraph (1), the penalty under subparagraph
(A) shall be $50,000.
``(C) Failure to comply after notice.--The
Secretary may require a real estate investment
trust to take such actions as the Secretary
determines appropriate to ascertain actual
ownership if the trust fails to meet the
requirements of paragraph (1). If the trust
fails to take such actions, the trust shall pay
(on notice and demand by the Secretary and in
the same manner as tax) an additional penalty
equal to the penalty determined under
subparagraph (A) or (B), whichever is
applicable.
``(D) Reasonable cause.--No penalty shall
be imposed under this paragraph with respect to
any failure if it is shown that such failure is
due to reasonable cause and not to willful
neglect.''.
(b) Compliance With Closely Held Prohibition.--
(1) In general.--Section 856 (defining real estate
investment trust) is amended by adding at the end the
following new subsection:
``(k) Requirement That Entity Not Be Closely Held Treated
as Met in Certain Cases.--A corporation, trust, or
association--
``(1) which for a taxable year meets the
requirements of section 857(f)(1), and
``(2) which does not know, or exercising reasonable
diligence would not have known, whether the entity
failed to meet the requirement of subsection (a)(6),
shall be treated as having met the requirement of subsection
(a)(6) for the taxable year.''.
(2) Conforming amendment.--Paragraph (6) of section
856(a) is amended by inserting ``subject to the
provisions of subsection (k),'' before ``which is
not''.
SEC. 1252. DE MINIMIS RULE FOR TENANT SERVICES INCOME.
(a) In General.--Paragraph (2) of section 856(d) (defining
rents from real property) is amended by striking subparagraph
(C) and the last sentence and inserting:
``(C) any impermissible tenant service
income (as defined in paragraph (7)).''.
(b) Impermissible Tenant Service Income.--Section 856(d) is
amended by adding at the end the following new paragraph:
``(7) Impermissible tenant service income.--For
purposes of paragraph (2)(C)--
``(A) In general.--The term `impermissible
tenant service income' means, with respect to
any real or personal property, any amount
received or accrued directly or indirectly by
the real estate investment trust for--
``(i) services furnished or
rendered by the trust to the tenants of
such property, or
``(ii) managing or operating such
property.
``(B) Disqualification of all amounts where
more than de minimis amount.--If the amount
described in subparagraph (A) with respect to a
property for any taxable year exceeds 1 percent
of all amounts received or accrued during such
taxable year directly or indirectly by the real
estate investment trust with respect to such
property, the impermissible tenant service
income of the trust with respect to the
property shall include all such amounts.
``(C) Exceptions.--For purposes of
subparagraph (A)--
``(i) services furnished or
rendered, or management or operation
provided, through an independent
contractor from whom the trust itself
does not derive or receive any income
shall not be treated as furnished,
rendered, or provided by the trust, and
``(ii) there shall not be taken
into account any amount which would be
excluded from unrelated business
taxable income under section 512(b)(3)
if received by an organization
described in section 511(a)(2).
``(D) Amount attributable to impermissible
services.--For purposes of subparagraph (A),
the amount treated as received for any service
(or management or operation) shall not be less
than 150 percent of the direct cost of the
trust in furnishing or rendering the service
(or providing the management or operation).
``(E) Coordination with limitations.--For
purposes of paragraphs (2) and (3) of
subsection (c), amounts described in
subparagraph (A) shall be included in the gross
income of the corporation, trust, or
association.''.
SEC. 1253. ATTRIBUTION RULES APPLICABLE TO STOCK OWNERSHIP.
Section 856(d)(5) (relating to constructive ownership of
stock) is amended by striking ``except that'' and all that
follows and inserting ``except that--
``(A) `10 percent' shall be substituted for
`50 percent' in subparagraph (C) of paragraphs
(2) and (3) of section 318(a), and
``(B) section 318(a)(3)(A) shall be applied
in the case of a partnership by taking into
account only partners who own (directly or
indirectly) 25 percent or more of the capital
interest, or the profits interest, in the
partnership.''.
SEC. 1254. CREDIT FOR TAX PAID BY REIT ON RETAINED CAPITAL GAINS.
(a) General Rule.--Paragraph (3) of section 857(b)
(relating to capital gains) is amended by redesignating
subparagraph (D) as subparagraph (E) and by inserting after
subparagraph (C) the following new subparagraph:
``(D) Treatment by shareholders of
undistributed capital gains.--
``(i) Every shareholder of a real
estate investment trust at the close of
the trust's taxable year shall include,
in computing his long-term capital
gains in his return for his taxable
year in which the last day of the
trust's taxable year falls, such amount
as the trust shall designate in respect
of such shares in a written notice
mailed to its shareholders at any time
prior to the expiration of 60 days
after the close of its taxable year (or
mailed to its shareholders or holders
of beneficial interests with its annual
report for the taxable year), but the
amount so includible by any shareholder
shall not exceed that part of the
amount subjected to tax in subparagraph
(A)(ii) which he would have received if
all of such amount had been distributed
as capital gain dividends by the trust
to the holders of such shares at the
close of its taxable year.
``(ii) For purposes of this title,
every such shareholder shall be deemed
to have paid, for his taxable year
under clause (i), the tax imposed by
subparagraph (A)(ii) on the amounts
required by this subparagraph to be
included in respect of such shares in
computing his long-term capital gains
for that year; and such shareholders
shall be allowed credit or refund as
the case may be, for the tax so deemed
to have been paid by him.
``(iii) The adjusted basis of such
shares in the hands of the holder shall
be increased with respect to the
amounts required by this subparagraph
to be included in computing his long-
term capital gains, by the difference
between the amount of such includible
gains and the tax deemed paid by such
shareholder in respect of such shares
under clause (ii).
``(iv) In the event of such
designation, the tax imposed by
subparagraph (A)(ii) shall be paid by
the real estate investment trust within
30 days after the close of its taxable
year.
``(v) The earnings and profits of
such real estate investment trust, and
the earnings and profits of any such
shareholder which is a corporation,
shall be appropriately adjusted in
accordance with regulations prescribed
by the Secretary.
``(vi) As used in this
subparagraph, the terms `shares' and
`shareholders' shall include beneficial
interests and holders of beneficial
interests, respectively.''.
(b) Conforming Amendments.--
(1) Clause (i) of section 857(b)(7)(A) is amended
by striking ``subparagraph (B)'' and inserting
``subparagraph (B) or (D)''.
(2) Clause (iii) of section 852(b)(3)(D) is amended
by striking ``by 65 percent'' and all that follows and
inserting ``by the difference between the amount of
such includible gains and the tax deemed paid by such
shareholder in respect of such shares under clause
(ii).''.
SEC. 1255. REPEAL OF 30-PERCENT GROSS INCOME REQUIREMENT.
(a) General Rule.--Subsection (c) of section 856 (relating
to limitations) is amended--
(1) by adding ``and'' at the end of paragraph (3),
(2) by striking paragraphs (4) and (8), and
(3) by redesignating paragraphs (5), (6), and (7)
as paragraphs (4), (5), and (6), respectively.
(b) Conforming Amendments.--
(1) Subparagraph (G) of section 856(c)(5), as
redesignated by subsection (a), is amended by striking
``and such agreement shall be treated as a security for
purposes of paragraph (4)(A)''.
(2) Paragraph (5) of section 857(b) is amended by
striking ``section 856(c)(7)'' and inserting ``section
856(c)(6)''.
(3) Subparagraph (C) of section 857(b)(6) is
amended by striking ``section 856(c)(6)(B)'' and
inserting ``section 856(c)(5)(B)''.
SEC. 1256. MODIFICATION OF EARNINGS AND PROFITS RULES FOR DETERMINING
WHETHER REIT HAS EARNINGS AND PROFITS FROM NON-REIT
YEAR.
Subsection (d) of section 857 is amended by adding at the
end the following new paragraph:
``(3) Distributions to meet requirements of
subsection (a)(2)(B).--Any distribution which is made
in order to comply with the requirements of subsection
(a)(2)(B)--
``(A) shall be treated for purposes of this
subsection and subsection (a)(2)(B) as made
from the earliest accumulated earnings and
profits (other than earnings and profits to
which subsection (a)(2)(A) applies) rather than
the most recently accumulated earnings and
profits, and
``(B) to the extent treated under
subparagraph (A) as made from accumulated
earnings and profits, shall not be treated as a
distribution for purposes of subsection
(b)(2)(B).''.
SEC. 1257. TREATMENT OF FORECLOSURE PROPERTY.
(a) Grace Periods.--
(1) Initial period.--Paragraph (2) of section
856(e) (relating to special rules for foreclosure
property) is amended by striking ``on the date which is
2 years after the date the trust acquired such
property'' and inserting ``as of the close of the 3d
taxable year following the taxable year in which the
trust acquired such property''.
(2) Extension.--Paragraph (3) of section 856(e) is
amended--
(A) by striking ``or more extensions'' and
inserting ``extension'', and
(B) by striking the last sentence and
inserting: ``Any such extension shall not
extend the grace period beyond the close of the
3d taxable year following the last taxable year
in the period under paragraph (2).''.
(b) Revocation of Election.--Paragraph (5) of section
856(e) is amended by striking the last sentence and inserting:
``A real estate investment trust may revoke any such election
for a taxable year by filing the revocation (in the manner
provided by the Secretary) on or before the due date (including
any extension of time) for filing its return of tax under this
chapter for the taxable year. If a trust revokes an election
for any property, no election may be made by the trust under
this paragraph with respect to the property for any subsequent
taxable year.''.
(c) Certain Activities Not To Disqualify Property.--
Paragraph (4) of section 856(e) is amended by adding at the end
the following new flush sentence:
``For purposes of subparagraph (C), property shall not
be treated as used in a trade or business by reason of
any activities of the real estate investment trust with
respect to such property to the extent that such
activities would not result in amounts received or
accrued, directly or indirectly, with respect to such
property being treated as other than rents from real
property.''.
SEC. 1258. PAYMENTS UNDER HEDGING INSTRUMENTS.
Section 856(c)(5)(G) (relating to treatment of certain
interest rate agreements), as redesignated by section 1255, is
amended to read as follows:
``(G) Treatment of certain hedging
instruments.--Except to the extent provided by
regulations, any--
``(i) payment to a real estate
investment trust under an interest rate
swap or cap agreement, option, futures
contract, forward rate agreement, or
any similar financial instrument,
entered into by the trust in a
transaction to reduce the interest rate
risks with respect to any indebtedness
incurred or to be incurred by the trust
to acquire or carry real estate assets,
and
``(ii) gain from the sale or other
disposition of any such investment,
shall be treated as income qualifying under
paragraph (2).''.
SEC. 1259. EXCESS NONCASH INCOME.
Section 857(e)(2) (relating to determination of amount of
excess noncash income) is amended--
(1) by striking subparagraph (B),
(2) by striking the period at the end of
subparagraph (C) and inserting a comma,
(3) by redesignating subparagraph (C) (as amended
by paragraph (2)) as subparagraph (B), and
(4) by adding at the end the following new
subparagraphs:
``(C) the amount (if any) by which--
``(i) the amounts includible in
gross income with respect to
instruments to which section 860E(a) or
1272 applies, exceed
``(ii) the amount of money and the
fair market value of other property
received during the taxable year under
such instruments, and
``(D) amounts includible in income by
reason of cancellation of indebtedness.''.
SEC. 1260. PROHIBITED TRANSACTION SAFE HARBOR.
Clause (iii) of section 857(b)(6)(C) (relating to certain
sales not to constitute prohibited transactions) is amended by
striking ``(other than foreclosure property)'' in subclauses
(I) and (II) and inserting ``(other than sales of foreclosure
property or sales to which section 1033 applies)''.
SEC. 1261. SHARED APPRECIATION MORTGAGES.
(a) Bankruptcy Safe Harbor.--Section 856(j) (relating to
treatment of shared appreciation mortgages) is amended by
redesignating paragraph (4) as paragraph (5) and by inserting
after paragraph (3) the following new paragraph:
``(4) Coordination with 4-year holding period.--
``(A) In general.--For purposes of section
857(b)(6)(C), if a real estate investment trust
is treated as having sold secured property
under paragraph (3)(A), the trust shall be
treated as having held such property for at
least 4 years if--
``(i) the secured property is sold
or otherwise disposed of pursuant to a
case under title 11 of the United
States Code,
``(ii) the seller is under the
jurisdiction of the court in such case,
and
``(iii) the disposition is required
by the court or is pursuant to a plan
approved by the court.
``(B) Exception.--Subparagraph (A) shall
not apply if--
``(i) the secured property was
acquired by the seller with the intent
to evict or foreclose, or
``(ii) the trust knew or had reason
to know that default on the obligation
described in paragraph (5)(A) would
occur.''.
(b) Clarification of Definition of Shared Appreciation
Provision.--Clause (ii) of section 856(j)(5)(A) is amended by
inserting before the period ``or appreciation in value as of
any specified date''.
SEC. 1262. WHOLLY OWNED SUBSIDIARIES.
Section 856(i)(2) (defining qualified REIT subsidiary) is
amended by striking ``at all times during the period such
corporation was in existence''.
SEC. 1263. EFFECTIVE DATE.
The amendments made by this part shall apply to taxable
years beginning after the date of the enactment of this Act.
Subtitle E--Provisions Relating to Regulated Investment Companies
SEC. 1271. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.
(a) General Rule.--Subsection (b) of section 851 (relating
to limitations) is amended by striking paragraph (3), by adding
``and'' at the end of paragraph (2), and by redesignating
paragraph (4) as paragraph (3).
(b) Technical Amendments.--
(1) The material following paragraph (3) of section
851(b) (as redesignated by subsection (a)) is amended--
(A) by striking out ``paragraphs (2) and
(3)'' and inserting ``paragraph (2)'', and
(B) by striking out the last sentence
thereof.
(2) Subsection (c) of section 851 is amended by
striking ``subsection (b)(4)'' each place it appears
(including the heading) and inserting ``subsection
(b)(3)''.
(3) Subsection (d) of section 851 is amended by
striking ``subsections (b)(4)'' and inserting
``subsections (b)(3)''.
(4) Paragraph (1) of section 851(e) is amended by
striking ``subsection (b)(4)'' and inserting
``subsection (b)(3)''.
(5) Paragraph (4) of section 851(e) is amended by
striking ``subsections (b)(4)'' and inserting
``subsections (b)(3)''.
(6) Section 851 is amended by striking subsection
(g) and redesignating subsection (h) as subsection (g).
(7) Subsection (g) of section 851 (as redesignated
by paragraph (6)) is amended by striking paragraph (3).
(8) Section 817(h)(2) is amended--
(A) by striking ``851(b)(4)'' in
subparagraph (A) and inserting ``851(b)(3)'',
and
(B) by striking ``851(b)(4)(A)(i)'' in
subparagraph (B) and inserting
``851(b)(3)(A)(i)''.
(9) Section 1092(f)(2) is amended by striking
``Except for purposes of section 851(b)(3), the'' and
inserting ``The''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
Subtitle F--Taxpayer Protections
SEC. 1281. REASONABLE CAUSE EXCEPTION FOR CERTAIN PENALTIES.
(a) Information on Deductible Employee Contributions.--
Subsection (g) of section 6652 (relating to information
required in connection with deductible employee contributions)
is amended by adding at the end the following new sentence:
``No penalty shall be imposed under this subsection on any
failure which is shown to be due to reasonable cause and not
willful neglect.''.
(b) Reports on Status as Qualified Small Business.--
Subsection (k) of section 6652 (relating to failure to make
reports required under section 1202) is amended by adding at
the end the following new sentence: ``No penalty shall be
imposed under this subsection on any failure which is shown to
be due to reasonable cause and not willful neglect.''.
(c) Returns of Personal Holding Company Tax by Foreign
Corporations.--Section 6683 (relating to failure of foreign
corporation to file return of personal holding company tax) is
amended by adding at the end the following new sentence: ``No
penalty shall be imposed under this section on any failure
which is shown to be due to reasonable cause and not willful
neglect.''.
(d) Failure To Make Required Payments.--Subparagraph (A) of
section 7519(f)(4) is amended by adding at the end the
following new sentence: ``No penalty shall be imposed under
this subparagraph on any failure which is shown to be due to
reasonable cause and not willful neglect.''.
(e) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 1282. CLARIFICATION OF PERIOD FOR FILING CLAIMS FOR REFUNDS.
(a) In General.--Paragraph (3) of section 6512(b) (relating
to overpayment determined by Tax Court) is amended by adding at
the end the following flush sentence:
``In a case described in subparagraph (B) where the
date of the mailing of the notice of deficiency is
during the third year after the due date (with
extensions) for filing the return of tax and no return
was filed before such date, the applicable period under
subsections (a) and (b)(2) of section 6511 shall be 3
years.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to claims for credit or refund for taxable years
ending after the date of the enactment of this Act.
SEC. 1283. REPEAL OF AUTHORITY TO DISCLOSE WHETHER PROSPECTIVE JUROR
HAS BEEN AUDITED.
(a) In General.--Subsection (h) of section 6103 (relating
to disclosure to certain Federal officers and employees for
purposes of tax administration, etc.) is amended by striking
paragraph (5) and by redesignating paragraph (6) as paragraph
(5).
(b) Conforming Amendment.--Paragraph (4) of section 6103(p)
is amended by striking ``(h)(6)'' each place it appears and
inserting ``(h)(5)''.
(c) Effective Date.--The amendments made by this section
shall apply to judicial proceedings commenced after the date of
the enactment of this Act.
SEC. 1284. CLARIFICATION OF STATUTE OF LIMITATIONS.
(a) In General.--Subsection (a) of section 6501 (relating
to limitations on assessment and collection) is amended by
adding at the end thereof the following new sentence: ``For
purposes of this chapter, the term `return' means the return
required to be filed by the taxpayer (and does not include a
return of any person from whom the taxpayer has received an
item of income, gain, loss, deduction, or credit).''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 1285. AWARDING OF ADMINISTRATIVE COSTS.
(a) Right to Appeal Tax Court Decision.--Subsection (f) of
section 7430 (relating to right of appeal) is amended by adding
at the end the following new paragraph:
``(3) Appeal of tax court decision.--An order of
the Tax Court disposing of a petition underparagraph
(2) shall be reviewable in the same manner as a decision of the Tax
Court, but only with respect to the matters determined in such
order.''.
(b) Period for Applying to IRS for Costs.--Subsection (b)
of section 7430 (relating to limitations) is amended by adding
at the end the following new paragraph:
``(5) Period for applying to irs for administrative
costs.--An award may be made under subsection (a) by
the Internal Revenue Service for reasonable
administrative costs only if the prevailing party files
an application with the Internal Revenue Service for
such costs before the 91st day after the date on which
the final decision of the Internal Revenue Service as
to the determination of the tax, interest, or penalty
is mailed to such party.''.
(c) Period for Petitioning of Tax Court for Review of
Denial of Costs.--Paragraph (2) of section 7430(f) (relating to
right of appeal) is amended--
(1) by striking ``appeal to'' and inserting ``the
filing of a petition for review with'', and
(2) by adding at the end the following new
sentence: ``If the Secretary sends by certified or
registered mail a notice of such decision to the
petitioner, no proceeding in the Tax Court may be
initiated under this paragraph unless such petition is
filed before the 91st day after the date of such
mailing.''.
(d) Effective Date.--The amendments made by this section
shall apply to civil actions or proceedings commenced after the
date of the enactment of this Act.
TITLE XIII--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES
SEC. 1301. GIFTS TO CHARITIES EXEMPT FROM GIFT TAX FILING REQUIREMENTS.
(a) In General.--Section 6019 is amended by striking ``or''
at the end of paragraph (1), by adding ``or'' at the end of
paragraph (2), and by inserting after paragraph (2) the
following new paragraph:
``(3) a transfer with respect to which a deduction
is allowed under section 2522 but only if--
``(A)(i) such transfer is of the donor's
entire interest in the property transferred,
and
``(ii) no other interest in such property
is or has been transferred (for less than
adequate and full consideration in money or
money's worth) from the donor to a person, or
for a use, not described in subsection (a) or
(b) of section 2522, or
``(B) such transfer is described in section
2522(d),''.
(b) Effective Date.--The amendment made by this section
shall apply to gifts made after the date of the enactment of
this Act.
SEC. 1302. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF RECOVERY.
(a) Amendment to Section 2207A.--Paragraph (2) of section
2207A(a) (relating to right of recovery in the case of certain
marital deduction property) is amended to read as follows:
``(2) Decedent may otherwise direct.--Paragraph (1)
shall not apply with respect to any property to the
extent that the decedent in his will (or a revocable
trust) specifically indicates an intent to waive any
right of recovery under this subchapter with respect to
such property.''.
(b) Amendment to Section 2207B.--Paragraph (2) of section
2207B(a) (relating to right of recovery where decedent retained
interest) is amended to read as follows:
``(2) Decedent may otherwise direct.--Paragraph (1)
shall not apply with respect to any property to the
extent that the decedent in his will (or a revocable
trust) specifically indicates an intent to waive any
right of recovery under this subchapter with respect to
such property.''.
(c) Effective Date.--The amendments made by this section
shall apply with respect to the estates of decedents dying
after the date of the enactment of this Act.
SEC. 1303. TRANSITIONAL RULE UNDER SECTION 2056A.
(a) General Rule.--In the case of any trust created under
an instrument executed before the date of the enactment of the
Revenue Reconciliation Act of 1990, such trust shall be treated
as meeting the requirements of paragraph (1) of section
2056A(a) of the Internal Revenue Code of 1986 if the trust
instrument requires that all trustees of the trust be
individual citizens of the United States or domestic
corporations.
(b) Effective Date.--The provisions of subsection (a) shall
take effect as if included in the provisions of section
11702(g) of the Revenue Reconciliation Act of 1990.
SEC. 1304. TREATMENT FOR ESTATE TAX PURPOSES OF SHORT-TERM OBLIGATIONS
HELD BY NONRESIDENT ALIENS.
(a) In General.--Subsection (b) of section 2105 is amended
by striking ``and'' at the end of paragraph (2), by striking
the period at the end of paragraph (3) and inserting ``, and'',
and by inserting after paragraph (3) the following new
paragraph:
``(4) obligations which would be original issue
discount obligations as defined in section 871(g)(1)
but for subparagraph (B)(i) thereof, if any interest
thereon (were such interest received by the decedent at
the time of his death) would not be effectively
connected with the conduct of a trade or business
within the United States.''.
(b) Effective Date.--The amendment made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
SEC. 1305. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.
(a) In General.--Subpart A of part I of subchapter J
(relating to estates, trusts, beneficiaries, and decedents) is
amended by adding at the end the following new section:
``SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.
``(a) General Rule.--For purposes of this subtitle, if both
the executor (if any) of an estate and the trustee of a
qualified revocable trust elect the treatment provided in this
section, such trust shall be treated and taxed as part of such
estate (and not as a separate trust) for all taxable years of
the estate ending after the date of the decedent's death and
before the applicable date.
``(b) Definitions.--For purposes of subsection (a)--
``(1) Qualified revocable trust.--The term
`qualified revocable trust' means any trust (or portion
thereof) which was treated under section 676 as owned
by the decedent of the estate referred to in subsection
(a) by reason of a power in the grantor (determined
without regard to section 672(e)).
``(2) Applicable date.--The term `applicable date'
means--
``(A) if no return of tax imposed by
chapter 11 is required to be filed, the date
which is 2 years after the date of the
decedent's death, and
``(B) if such a return is required to be
filed, the date which is 6 months after the
date of the final determination of the
liability for tax imposed by chapter 11.
``(c) Election.--The election under subsection (a) shall be
made not later than the time prescribed for filing the return
of tax imposed by this chapter for the first taxable year of
the estate (determined with regard to extensions) and, once
made, shall be irrevocable.''.
(b) Comparable Treatment Under Generation-Skipping Tax.--
Paragraph (1) of section 2652(b) is amended by adding at the
end the following new sentence: ``Such term shall not include
any trust during any period the trust is treated as part of an
estate under section 646.''.
(c) Clerical Amendment.--The table of sections for such
subpart A is amended by adding at the end the following new
item:
``Sec. 646. Certain revocable trusts treated as part of
estate.''.
(d) Effective Date.--The amendments made by this section
shall apply with respect to estates of decedents dying after
the date of the enactment of this Act.
SEC. 1306. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAXABLE YEAR OF
ESTATE.
(a) In General.--Subsection (b) of section 663 (relating to
distributions in first 65 days of taxable year) is amended by
inserting ``an estate or'' before ``a trust'' each place it
appears.
(b) Conforming Amendment.--Paragraph (2) of section 663(b)
is amended by striking ``the fiduciary of such trust'' and
inserting ``the executor of such estate or the fiduciary of
such trust (as the case may be)''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 1307. SEPARATE SHARE RULES AVAILABLE TO ESTATES.
(a) In General.--Subsection (c) of section 663 (relating to
separate shares treated as separate trusts) is amended--
(1) by inserting before the last sentence the
following new sentence: ``Rules similar to the rules of
the preceding provisions of this subsection shall apply
to treat substantially separate and independent shares
of different beneficiaries in an estate having more
than 1 beneficiary as separate estates.'', and
(2) by inserting ``or estates'' after ``trusts'' in
the last sentence.
(b) Conforming Amendment.--The subsection heading of
section 663(c) is amended by inserting ``Estates or'' before
``Trusts''.
(c) Effective Date.--The amendments made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
SEC. 1308. EXECUTOR OF ESTATE AND BENEFICIARIES TREATED AS RELATED
PERSONS FOR DISALLOWANCE OF LOSSES, ETC.
(a) Disallowance of Losses.--Subsection (b) of section 267
(relating to losses, expenses, and interest with respect to
transactions between related taxpayers) is amended by striking
``or'' at the end of paragraph (11), by striking the period at
the end of paragraph (12) and inserting ``; or'', and by adding
at the end the following new paragraph:
``(13) Except in the case of a sale or exchange in
satisfaction of a pecuniary bequest, an executor of an
estate and a beneficiary of such estate.''.
(b) Ordinary Income From Gain From Sale of Depreciable
Property.--Subsection (b) of section 1239 is amended by
striking the period at the end of paragraph (2) and inserting
``, and'' and by adding at the end the following new paragraph:
``(3) except in the case of a sale or exchange in
satisfaction of a pecuniary bequest, an executor of an
estate and a beneficiary of such estate.''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 1309. TREATMENT OF FUNERAL TRUSTS.
(a) In General.--Subpart F of part I of subchapter J of
chapter 1 is amended by adding at the end the following new
section:
``SEC. 685. TREATMENT OF FUNERAL TRUSTS.
``(a) In General.--In the case of a qualified funeral
trust--
``(1) subparts B, C, D, and E shall not apply, and
``(2) no deduction shall be allowed by section
642(b).
``(b) Qualified Funeral Trust.--For purposes of this
subsection, the term `qualified funeral trust' means any trust
(other than a foreign trust) if--
``(1) the trust arises as a result of a contract
with a person engaged in the trade or business of
providing funeral or burial services or property
necessary to provide such services,
``(2) the sole purpose of the trust is to hold,
invest, and reinvest funds in the trust and to use such
funds solely to make payments for such services or
property for the benefit of the beneficiaries of the
trust,
``(3) the only beneficiaries of such trust are
individuals with respect to whom such services or
property are to be provided at their death under
contracts described in paragraph (1),
``(4) the only contributions to the trust are
contributions by or for the benefit of such
beneficiaries,
``(5) the trustee elects the application of this
subsection, and
``(6) the trust would (but for the election
described in paragraph (5)) be treated as owned under
subpart E by the purchasers of the contracts described
in paragraph (1).
``(c) Dollar Limitation on Contributions.--
``(1) In general.--The term `qualified funeral
trust' shall not include any trust which accepts
aggregate contributions by or for the benefit of an
individual in excess of $7,000.
``(2) Related trusts.--For purposes of paragraph
(1), all trusts having trustees which are related
persons shall be treated as 1 trust. For purposes of
the preceding sentence, persons are related if--
``(A) the relationship between such persons
is described in section 267 or 707(b),
``(B) such persons are treated as a single
employer under subsection (a) or (b) of section
52, or
``(C) the Secretary determines that
treating such persons as related is necessary
to prevent avoidance of the purposes of this
section.
``(3) Inflation adjustment.--In the case of any
contract referred to in subsection (b)(1) which is
entered into during any calendar year after 1998, the
dollar amount referred to paragraph (1) shall be
increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment
determined under section 1(f)(3) for such
calendar year, by substituting `calendar year
1997' for `calendar year 1992' in subparagraph
(B) thereof.
If any dollar amount after being increased under the
preceding sentence is not a multiple of $100, such
dollar amount shall be rounded to the nearest multiple
of $100.
``(d) Application of Rate Schedule.--Section 1(e) shall be
applied to each qualified funeral trust by treating each
beneficiary's interest in each such trust as a separate trust.
``(e) Treatment of Amounts Refunded to Purchaser on
Cancellation.--No gain or loss shall be recognized to a
purchaser of a contract described in subsection (b)(1) by
reason of any payment from such trust to such purchaser by
reason of cancellation of such contract. If any payment
referred to in the preceding sentence consists of property
other than money, the basis of such property in the hands of
such purchaser shall be the same as the trust's basis in such
property immediately before the payment.
``(f) Simplified Reporting.--The Secretary may prescribe
rules for simplified reporting of all trusts having a single
trustee.''.
(b) Clerical Amendment.--The table of sections for subpart
F of part I of subchapter J of chapter 1 is amended by adding
at the end the following new item:
``Sec. 685. Treatment of funeral trusts.''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years ending after the date of the
enactment of this Act.
SEC. 1310. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT'S DEATH.
(a) General Rule.--Section 2035 is amended to read as
follows:
``SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 YEARS OF
DECEDENT'S DEATH.
``(a) Inclusion of Certain Property in Gross Estate.--If--
``(1) the decedent made a transfer (by trust or
otherwise) of an interest in any property, or
relinquished a power with respect to any property,
during the 3-year period ending on the date of the
decedent's death, and
``(2) the value of such property (or an interest
therein) would have been included in the decedent's
gross estate under section 2036, 2037, 2038, or 2042 if
such transferred interest or relinquished power had
been retained by the decedent on the date of his death,
the value of the gross estate shall include the value of any
property (or interest therein) which would have been so
included.
``(b) Inclusion of Gift Tax on Gifts Made During 3 Years
Before Decedent's Death.--The amount of the gross estate
(determined without regard to this subsection) shall be
increased by the amount of any tax paid under chapter 12 by the
decedent or his estate on any gift made by the decedent or his
spouse during the 3-year period ending on the date of the
decedent's death.
``(c) Other Rules Relating to Transfers Within 3 Years of
Death.--
``(1) In general.--For purposes of--
``(A) section 303(b) (relating to
distributions in redemption of stock to pay
death taxes),
``(B) section 2032A (relating to special
valuation of certain farms, etc., real
property), and
``(C) subchapter C of chapter 64 (relating
to lien for taxes),
the value of the gross estate shall include the value
of all property to the extent of any interest therein
of which the decedent has at any time made a
transfer,by trust or otherwise, during the 3-year period ending on the
date of the decedent's death.
``(2) Coordination with section 6166.--An estate
shall be treated as meeting the 35 percent of adjusted
gross estate requirement of section 6166(a)(1) only if
the estate meets such requirement both with and without
the application of paragraph (1).
``(3) Marital and small transfers.--Paragraph (1)
shall not apply to any transfer (other than a transfer
with respect to a life insurance policy) made during a
calendar year to any donee if the decedent was not
required by section 6019 (other than by reason of
section 6019(2)) to file any gift tax return for such
year with respect to transfers to such donee.
``(d) Exception.--Subsection (a) shall not apply to any
bona fide sale for an adequate and full consideration in money
or money's worth.
``(e) Treatment of Certain Transfers From Revocable
Trusts.--For purposes of this section and section 2038, any
transfer from any portion of a trust during any period that
such portion was treated under section 676 as owned by the
decedent by reason of a power in the grantor (determined
without regard to section 672(e)) shall be treated as a
transfer made directly by the decedent.''.
(b) Clerical Amendment.--The table of sections for part III
of subchapter A of chapter 11 is amended by striking ``gifts''
in the item relating to section 2035 and inserting ``certain
gifts''.
(c) Effective Date.--The amendments made by this section
shall apply to the estates of decedents dying after the date of
the enactment of this Act.
SEC. 1311. CLARIFICATION OF TREATMENT OF SURVIVOR ANNUITIES UNDER
QUALIFIED TERMINABLE INTEREST RULES.
(a) In General.--Subparagraph (C) of section 2056(b)(7) is
amended by inserting ``(or, in the case of an interest in an
annuity arising under the community property laws of a State,
included in the gross estate of the decedent under section
2033)'' after ``section 2039''.
(b) Effective Date.--The amendment made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
SEC. 1312. TREATMENT UNDER QUALIFIED DOMESTIC TRUST RULES OF FORMS OF
OWNERSHIP WHICH ARE NOT TRUSTS.
(a) In General.--Subsection (c) of section 2056A (defining
qualified domestic trust) is amended by adding at the end the
following new paragraph:
``(3) Trust.--To the extent provided in regulations
prescribed by the Secretary, the term `trust' includes
other arrangements which have substantially the same
effect as a trust.''.
(b) Effective Date.--The amendment made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
SEC. 1313. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER SECTION 2032A.
(a) General Rule.--Paragraph (3) of section 2032A(d)
(relating to modification of election and agreement to be
permitted) is amended to read as follows:
``(3) Modification of election and agreement to be
permitted.--The Secretary shall prescribe procedures
which provide that in any case in which the executor
makes an election under paragraph (1) (and submits the
agreement referred to in paragraph (2)) within the time
prescribed therefor, but--
``(A) the notice of election, as filed,
does not contain all required information, or
``(B) signatures of 1 or more persons
required to enter into the agreement described
in paragraph (2) are not included on the
agreement as filed, or the agreement does not
contain all required information,
the executor will have a reasonable period of time (not
exceeding 90 days) after notification of such failures
to provide such information or signatures.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to the estates of decedents dying after the date of
the enactment of this Act.
SEC. 1314. AUTHORITY TO WAIVE REQUIREMENT OF UNITED STATES TRUSTEE FOR
QUALIFIED DOMESTIC TRUSTS.
(a) In General.--Subparagraph (A) of section 2056A(a)(1) is
amended by inserting ``except as provided in regulations
prescribed by the Secretary,'' before ``requires''.
(b) Effective Date.--The amendment made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
TITLE XIV--SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES, TAX-
EXEMPT BONDS, AND OTHER MATTERS
Subtitle A--Excise Tax Simplification
PART I--EXCISE TAXES ON HEAVY TRUCKS AND LUXURY CARS
SEC. 1401. INCREASE IN DE MINIMIS LIMIT FOR AFTER-MARKET ALTERATIONS
FOR HEAVY TRUCKS AND LUXURY CARS.
(a) In General.--Sections 4003(a)(3)(C) and 4051(b)(2)(B)
(relating to exceptions) are each amended by striking ``$200''
and inserting ``$1,000''.
(b) Effective Date.--The amendments made by subsection (a)
shall apply to installations on vehicles sold after the date of
the enactment of this Act.
SEC. 1402. CREDIT FOR TIRE TAX IN LIEU OF EXCLUSION OF VALUE OF TIRES
IN COMPUTING PRICE.
(a) In General.--Subsection (e) of section 4051 is amended
to read as follows:
``(e) Credit Against Tax for Tire Tax.--If--
``(1) tires are sold on or in connection with the
sale of any article, and
``(2) tax is imposed by this subchapter on the sale
of such tires,
there shall be allowed as a credit against the tax imposed by
this subchapter an amount equal to the tax (if any) imposed by
section 4071 on such tires.''.
(b) Conforming Amendment.--Subparagraph (B) of section
4052(b)(1) is amended by striking clause (iii), by adding
``and'' at the end of clause (ii), and by redesignating clause
(iv) as clause (iii).
(c) Effective Date.--The amendments made by this section
shall take effect on January 1, 1998.
PART II--PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND BEER
SEC. 1411. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED SPIRITS
RETURNED TO DISTILLED SPIRITS PLANT.
(a) In General.--Section 5008(c)(1) (relating to distilled
spirits returned to bonded premises) is amended by striking
``withdrawn from bonded premises on payment or determination of
tax'' and inserting ``on which tax has been determined or
paid''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
SEC. 1412. AUTHORITY TO CANCEL OR CREDIT EXPORT BONDS WITHOUT
SUBMISSION OF RECORDS.
(a) In General.--Section 5175(c) (relating to cancellation
of credit of export bonds) is amended by striking ``on the
submission of'' and all that follows and inserting ``if there
is such proof of exportation as the Secretary may by
regulations require.''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
SEC. 1413. REPEAL OF REQUIRED MAINTENANCE OF RECORDS ON PREMISES OF
DISTILLED SPIRITS PLANT.
(a) In General.--Section 5207(c) (relating to preservation
and inspection) is amended by striking ``shall be kept on the
premises where the operations covered by the record are carried
on and''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
SEC. 1414. FERMENTED MATERIAL FROM ANY BREWERY MAY BE RECEIVED AT A
DISTILLED SPIRITS PLANT.
(a) In General.--Section 5222(b)(2) (relating to receipt)
is amended to read as follows:
``(2) beer conveyed without payment of tax from
brewery premises, beer which has been lawfully removed
from brewery premises upon determination of tax, or''.
(b) Clarification of Authority To Permit Removal of Beer
Without Payment of Tax for Use as Distilling Material.--Section
5053 (relating to exemptions) is amended by redesignating
subsection (f) as subsection (i) and by inserting after
subsection (e) the following new subsection:
``(f) Removal for Use as Distilling Material.--Subject to
such regulations as the Secretary may prescribe, beer may be
removed from a brewery without payment of tax to any distilled
spirits plant for use as distilling material.''.
(c) Clarification of Refund and Credit of Tax.--Section
5056 (relating to refund and credit of tax, or relief from
liability) is amended--
(1) by redesignating subsection (c) as subsection
(d) and by inserting after subsection (b) the following
new subsection:
``(c) Beer Received at a Distilled Spirits Plant.--Any tax
paid by any brewer on beer produced in the United States may be
refunded or credited to the brewer, without interest, or if the
tax has not been paid, the brewer may be relieved of liability
therefor, under regulations as the Secretary may prescribe, if
such beer is received on the bonded premises of a distilled
spirits plant pursuant to the provisions of section 5222(b)(2),
for use in the production of distilled spirits.'', and
(2) by striking ``or rendering unmerchantable'' in
subsection (d) (as so redesignated) and inserting
``rendering unmerchantable, or receipt on the bonded
premises of a distilled spirits plant''.
(d) Effective Date.--The amendments made by this section
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
SEC. 1415. REPEAL OF REQUIREMENT FOR WHOLESALE DEALERS IN LIQUORS TO
POST SIGN.
(a) In General.--Section 5115 (relating to sign required on
premises) is hereby repealed.
(b) Conforming Amendments.--
(1) Section 5681(a) is amended by striking ``, and
every wholesale dealer in liquors,'' and by striking
``section 5115(a) or''.
(2) Section 5681(c) is amended--
(A) by striking ``or wholesale liquor
establishment, on which no sign required by
section 5115(a) or'' and inserting ``on which
no sign required by'', and
(B) by striking ``or wholesale liquor
establishment, or who'' and inserting ``or
who''.
(3) The table of sections for subpart D of part II
of subchapter A of chapter 51 is amended by striking
the item relating to section 5115.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 1416. REFUND OF TAX TO WINE RETURNED TO BOND NOT LIMITED TO
UNMERCHANTABLE WINE.
(a) In General.--Section 5044(a) (relating to refund of tax
on unmerchantable wine) is amended by striking ``as
unmerchantable''.
(b) Conforming Amendments.--
(1) Section 5361 is amended by striking
``unmerchantable''.
(2) The section heading for section 5044 is amended
by striking ``UNMERCHANTABLE''.
(3) The item relating to section 5044 in the table
of sections for subpart C of part I of subchapter A of
chapter 51 is amended by striking ``unmerchantable''.
(c) Effective Date.--The amendments made by this section
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
SEC. 1417. USE OF ADDITIONAL AMELIORATING MATERIAL IN CERTAIN WINES.
(a) In General.--Section 5384(b)(2)(D) (relating to
ameliorated fruit and berry wines) is amended by striking
``loganberries, currants, or gooseberries,'' and inserting
``any fruit or berry with a natural fixed acid of 20 parts per
thousand or more (before any correction of such fruit or
berry)''.
(b) Effective Date.--The amendment made by this section
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
SEC. 1418. DOMESTICALLY PRODUCED BEER MAY BE WITHDRAWN FREE OF TAX FOR
USE OF FOREIGN EMBASSIES, LEGATIONS, ETC.
(a) In General.--Section 5053 (relating to exemptions), as
amended by section 1414(b), is amended by inserting after
subsection (f) the following new subsection:
``(g) Removals for Use of Foreign Embassies, Legations,
Etc.--
``(1) In general.--Subject to such regulations as
the Secretary may prescribe--
``(A) beer may be withdrawn from the
brewery without payment of tax for transfer to
any customs bonded warehouse for entry pending
withdrawal therefrom as provided in
subparagraph (B), and
``(B) beer entered into any customs bonded
warehouse under subparagraph (A) may be
withdrawn for consumption in the United States
by, and for the official and family use of,
such foreign governments, organizations, and
individuals as are entitled to withdraw
imported beer from such warehouses free of tax.
Beer transferred to any customs bonded warehouse under
subparagraph (A) shall be entered, stored, and
accounted for in such warehouse under such regulations
and bonds as the Secretary may prescribe, and may be
withdrawn therefrom by such governments, organizations,
and individuals free of tax under the same conditions
and procedures as imported beer.
``(2) Other rules to apply.--Rules similar to the
rules of paragraphs (2) and (3) of section 5362(e)
shall apply for purposes of this subsection.''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
SEC. 1419. BEER MAY BE WITHDRAWN FREE OF TAX FOR DESTRUCTION.
(a) In General.--Section 5053 (relating to exemptions), as
amended by section 1418(a), is amended by inserting after
subsection (g) the following new subsection:
``(h) Removals for Destruction.--Subject to such
regulations as the Secretary may prescribe, beer may be removed
from the brewery without payment of tax for destruction.''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
SEC. 1420. AUTHORITY TO ALLOW DRAWBACK ON EXPORTED BEER WITHOUT
SUBMISSION OF RECORDS.
(a) In General.--The first sentence of section 5055
(relating to drawback of tax on beer) is amended by striking
``found to have been paid'' and all that follows and inserting
``paid on such beer if there is such proof of exportation as
the Secretary may by regulations require.''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
SEC. 1421. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK WITHOUT PAYMENT
OF TAX.
(a) In General.--Part II of subchapter G of chapter 51 is
amended by adding at the end the following new section:
``SEC. 5418. BEER IMPORTED IN BULK.
``Beer imported or brought into the United States in bulk
containers may, under such regulations as the Secretary may
prescribe, be withdrawn from customs custody and transferred in
such bulk containers to the premises of a brewery without
payment of the internal revenue tax imposed on such beer. The
proprietor of a brewery to which such beer is transferred shall
become liable for the tax on the beer withdrawn from customs
custody under this section upon release of the beer from
customs custody, and the importer, or the person bringing such
beer into the United States, shall thereupon be relieved of the
liability for such tax.''.
(b) Clerical Amendment.--The table of sections for such
part II is amended by adding at the end the following new item:
``Sec. 5418. Beer imported in bulk.''.
(c) Effective Date.--The amendments made by this section
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
SEC. 1422. TRANSFER TO BONDED WINE CELLARS OF WINE IMPORTED IN BULK
WITHOUT PAYMENT OF TAX.
(a) In General.--Part II of subchapter F of chapter 51 is
amended by inserting after section 5363 the following new
section:
``SEC. 5364. WINE IMPORTED IN BULK.
``Wine imported or brought into the United States in bulk
containers may, under such regulations as the Secretary may
prescribe, be withdrawn from customs custody and transferred in
such bulk containers to the premises of a bonded wine cellar
without payment of the internal revenue tax imposed on such
wine. The proprietor of a bonded wine cellar to which such wine
is transferred shall become liable for the tax on the wine
withdrawn from customs custody under this section upon release
of the wine from customs custody, and the importer, or the
person bringing such wine into the United States, shall
thereupon be relieved of the liability for such tax.''.
(b) Clerical Amendment.--The table of sections for such
part II is amended by inserting after the item relating to
section 5363 the following new item:
``Sec. 5364. Wine imported in bulk.''.
(c) Effective Date.--The amendments made by this section
shall take effect on the 1st day of the 1st calendar quarter
that begins at least 180 days after the date of the enactment
of this Act.
PART III--OTHER EXCISE TAX PROVISIONS
SEC. 1431. AUTHORITY TO GRANT EXEMPTIONS FROM REGISTRATION
REQUIREMENTS.
(a) In General.--Section 4222(b)(2) (relating to export) is
amended--
(1) by striking ``in the case of any sale or resale
for export,'', and
(2) by striking ``Export'' and inserting ``Under
regulations''.
(b) Effective Date.--The amendments made by subsection (a)
shall take effect on the date of the enactment of this Act.
SEC. 1432. REPEAL OF EXPIRED PROVISIONS.
(a) Piggy-Back Trailers.--Section 4051 (relating to
imposition of tax on heavy trucks and trailers sold at retail)
is amended by striking subsection (d) and by redesignating
subsection (e) as subsection (d).
(b) Deep Seabed Mining.--
(1) In general.--Subchapter F of chapter 36
(relating to tax on removal of hard mineral resources
from deep seabed) is hereby repealed.
(2) Conforming amendment.--The table of subchapters
for chapter 36 is amended by striking the item relating
to subchapter F.
(c) Ozone-Depleting Chemicals.--
(1) Paragraph (1) of section 4681(b) is amended by
striking subparagraphs (B) and (C) and inserting the
following new subparagraph:
``(B) Base tax amount.--The base tax amount
for purposes of subparagraph (A) with respect
to any sale or use during any calendar year
after 1995 shall be $5.35 increased by 45 cents
for each year after 1995.''.
(2) Subsection (g) of section 4682 is amended to
read as follows:
``(g) Chemicals Used as Propellants in Metered-Dose
Inhalers.--
``(1) Exemption from tax.--
``(A) In general.--No tax shall be imposed
by section 4681 on--
``(i) any use of any substance as a
propellant in metered-dose inhalers, or
``(ii) any qualified sale by the
manufacturer, producer, or importer of
any substance.
``(B) Qualified sale.--For purposes of
subparagraph (A), the term `qualified sale'
means any sale by the manufacturer, producer,
or importer of any substance--
``(i) for use by the purchaser as a
propellant in metered dose inhalers, or
``(ii) for resale by the purchaser
to a 2d purchaser for such use by the
2d purchaser.
The preceding sentence shall apply only if the
manufacturer, producer, and importer, and the
1st and 2d purchasers (if any) meet such
registration requirements as may be prescribed
by the Secretary.
``(2) Overpayments.--If any substance on which tax
was paid under this subchapter is used by any person as
a propellant in metered-dose inhalers, credit or refund
without interest shall be allowed to such person in an
amount equal to the tax so paid. Amounts payable under
the preceding sentence with respect to uses during the
taxable year shall be treated as described in section
34(a) for such year unless claim thereof has been
timely filed under this paragraph.''.
SEC. 1433. SIMPLIFICATION OF IMPOSITION OF EXCISE TAX ON ARROWS.
(a) In General.--Subsection (b) of section 4161 (relating
to imposition of tax) is amended to read as follows:
``(b) Bows and Arrows, Etc.--
``(1) Bows.--
``(A) In general.--There is hereby imposed
on the sale by the manufacturer, producer, or
importer of any bow which has a draw weight of
10 pounds or more, a tax equal to 11 percent of
the price for which so sold.
``(B) Parts and accessories.--There is
hereby imposed upon the sale by the
manufacturer, producer, or importer--
``(i) of any part of accessory
suitable for inclusion in or attachment
to a bow described in subparagraph (A),
and
``(ii) of any quiver suitable for
use with arrows described in paragraph
(2),a tax equivalent to 11 percent of
the price for which so sold.
``(2) Arrows.--There is hereby imposed on the sale
by the manufacturer, producer, or importer of any
shaft, point, nock, or vane of a type used in the
manufacture of any arrow which after its assembly--
``(A) measures 18 inches overall or more in
length, or
``(B) measures less than 18 inches overall
in length but is suitable for use with a bow
described in paragraph (1)(A),
a tax equal to 12.4 percent of the price for which so
sold.
``(3) Coordination with subsection (a).--No tax
shall be imposed under this subsection with respect to
any article taxable under subsection (a).''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to articles sold by the manufacturer, producer, or
importer after September 30 1997.
SEC. 1434. MODIFICATIONS TO RETAIL TAX ON HEAVY TRUCKS.
(a) Certain Repairs and Modifications Not Treated as
Manufacture.--Section 4052 is amended by redesignating the
subsection defining a long-term lease as subsection (e) and by
adding at the end the following new subsection:
``(f) Certain Repairs and Modifications Not Treated as
Manufacture.--
``(1) In general.--An article described in section
4051(a)(1) shall not be treated as manufactured or
produced solely by reason of repairs or modifications
to the article (including any modification which
changes the transportation function of the article or
restores a wrecked article to a functional condition)
if the cost of such repairs and modifications does not
exceed 75 percent of the retail price of a comparable
new article.
``(2) Exception.--Paragraph (1) shall not apply if
the article (as repaired or modified) would, if new, be
taxable under section 4051 and the article when new was
not taxable under this section or the corresponding
provision of prior law.''.
(b) Simplification of Certification Procedures With Respect
to Sales of Taxable Articles.--
(1) Repeal of registration requirement.--Subsection
(d) of section 4052 is amended by striking ``rules of--
'' and all that follows through ``shall apply'' and
inserting ``rules of subsections (c)and (d) of section
4216 (relating to partial payments) shall apply''.
(2) Requirement to modify regulations.--Section
4052 is amended by adding at the end the following new
subsection:
``(g) Regulations.--The Secretary shall prescribe
regulations which permit, in lieu of any other certification,
persons who are purchasing articles taxable under this
subchapter for resale or leasing in a long-term lease to
execute a statement (made under penalties of perjury) on the
sale invoice that such sale is for resale. The Secretary shall
not impose any registration requirement as a condition of using
such procedure.''.
(c) Effective Date.--The amendments made by this section
shall take effect on January 1, 1998.
SEC. 1435. SKYDIVING FLIGHTS EXEMPT FROM TAX ON TRANSPORTATION OF
PERSONS BY AIR.
(a) In General.--Section 4261 (relating to imposition of
tax on transportation of persons by air), as previously amended
by this Act, is amended by redesignating subsection (h) as
subsection (i) and by inserting after subsection (g) the
following new subsection:
``(h) Exemption for Skydiving Uses.--No tax shall be
imposed by this section or section 4271 on any air
transportation exclusively for the purpose of skydiving.''.
(b) Transportation Treated as Noncommercial Aviation.--The
last sentence of section 4041(c)(2) is amended by inserting
before the period ``or by reason of section 4261(h)''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by
subsection (a) shall apply to amounts paid after
September 30, 1997.
(2) Subsection (b).--The amendment made by
subsection (b) shall take effect on October 1, 1997.
SEC. 1436. ALLOWANCE OR CREDIT OF REFUND FOR TAX-PAID AVIATION FUEL
PURCHASED BY REGISTERED PRODUCER OF AVIATION FUEL.
(a) In General.--Section 4091 (relating to aviation fuel)
is amended by adding at the end the following new subsection:
``(d) Refund of Tax-Paid Aviation Fuel to Registered
Producer of Fuel.--If--
``(1) a producer of aviation fuel is registered
under section 4101, and
``(2) such producer establishes to the satisfaction
of the Secretary that a prior tax was paid (and not
credited or refunded) on aviation fuel held by such
producer,
then an amount equal to the tax so paid shall be allowed as a
refund (without interest) to such producer in the same manner
as if it were an overpayment of tax imposed by this section.''.
(b) Conforming Amendment.--The last sentence of section
6416(d) is amended by inserting before the period ``or to the
tax imposed by section 4091 in the case of refunds described in
section 4091(d)''.
(c) Effective Date.--The amendments made by this section
shall apply to fuel acquired by the producer after September
30, 1997.
Subtitle B--Tax-Exempt Bond Provisions
SEC. 1441. REPEAL OF $100,000 LIMITATION ON UNSPENT PROCEEDS UNDER 1-
YEAR EXCEPTION FROM REBATE.
Subclause (I) of section 148(f)(4)(B)(ii) (relating to
additional period for certain bonds) is amended by striking
``the lesser of 5 percent of the proceeds of the issue or
$100,000'' and inserting ``5 percent of the proceeds of the
issue''.
SEC. 1442. EXCEPTION FROM REBATE FOR EARNINGS ON BONA FIDE DEBT SERVICE
FUND UNDER CONSTRUCTION BOND RULES.
Subparagraph (C) of section 148(f)(4) is amended by adding
at the end the following new clause:
``(xvii) Treatment of bona fide
debt service funds.--If the spending
requirements of clause (ii) are met
with respect to the available
construction proceeds of a construction
issue, then paragraph (2) shall not
apply to earnings on a bona fide debt
service fund for such issue.''.
SEC. 1443. REPEAL OF DEBT SERVICE-BASED LIMITATION ON INVESTMENT IN
CERTAIN NONPURPOSE INVESTMENTS.
Subsection (d) of section 148 (relating to special rules
for reasonably required reserve or replacement fund) is amended
by striking paragraph (3).
SEC. 1444. REPEAL OF EXPIRED PROVISIONS.
(a) Paragraph (2) of section 148(c) is amended by striking
subparagraph (B) and by redesignating subparagraphs (C), (D),
and (E) as subparagraphs (B), (C), and (D), respectively.
(b) Paragraph (4) of section 148(f) is amended by striking
subparagraph (E).
SEC. 1445. EFFECTIVE DATE.
The amendments made by this subtitle shall apply to bonds
issued after the date of the enactment of this Act.
Subtitle C--Tax Court Procedures
SEC. 1451. OVERPAYMENT DETERMINATIONS OF TAX COURT.
(a) Appeal of Order.--Paragraph (2) of section 6512(b)
(relating to jurisdiction to enforce) is amended by adding at
the end the following new sentence: ``An order of the Tax Court
disposing of a motion under this paragraph shall be reviewable
in the same manner as a decision of the Tax Court, but only
with respect to the matters determined in such order.''.
(b) Denial of Jurisdiction Regarding Certain Credits and
Reductions.--Subsection (b) of section 6512 (relating to
overpayment determined by Tax Court) is amended by adding at
the end the following new paragraph:
``(4) Denial of jurisdiction regarding certain
credits and reductions.--The Tax Court shall have no
jurisdiction under this subsection to restrain or
review any credit or reduction made by the Secretary
under section 6402.''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 1452. REDETERMINATION OF INTEREST PURSUANT TO MOTION.
(a) In General.--Subsection (c) of section 7481 (relating
to jurisdiction over interest determinations) is amended to
read as follows:
``(c) Jurisdiction Over Interest Determinations.--
``(1) In general.--Notwithstanding subsection (a),
if, within 1 year after the date the decision of the
Tax Court becomes final under subsection (a) in a case
to which this subsection applies, the taxpayer files a
motion in the Tax Court for a redetermination of the
amount of interest involved, then the Tax Court may
reopen the case solely to determine whether the
taxpayer has made an overpayment of such interest or
the Secretary has made an underpayment of such interest
and the amount thereof.
``(2) Cases to which this subsection applies.--This
subsection shall apply where--
``(A)(i) an assessment has been made by the
Secretary under section 6215 which includes
interest as imposed by this title, and
``(ii) the taxpayer has paid the entire
amount of the deficiency plus interest claimed
by the Secretary, and
``(B) the Tax Court finds under section
6512(b) that the taxpayer has made an
overpayment.
``(3) Special rules.--If the Tax Court determines
under this subsection that the taxpayer has made an
overpayment of interest or that the Secretary has made
an underpayment of interest, then that determination
shall be treated under section 6512(b)(1) as a
determination of an overpayment of tax. An order of the
Tax Court redetermining interest, when entered upon the
records of the court, shall be reviewable in the same
manner as a decision of the Tax Court.''.
(b) Effective Date.--The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 1453. APPLICATION OF NET WORTH REQUIREMENT FOR AWARDS OF
LITIGATION COSTS.
(a) In General.--Paragraph (4) of section 7430(c) (defining
prevailing party) is amended by adding at the end thereof the
following new subparagraph:
``(D) Special rules for applying net worth
requirement.--In applying the requirements of
section 2412(d)(2)(B) of title 28, United
States Code, for purposes of subparagraph
(A)(iii) of this paragraph--
``(i) the net worth limitation in
clause (i) of such section shall apply
to--
``(I) an estate but shall
be determined as of the date of
the decedent's death, and
``(II) a trust but shall be
determined as of the last day
of the taxable year involved in
the proceeding, and
``(ii) individuals filing a joint
return shall be treated as separate
individuals for purposes of clause (i)
of such section.''.
(b) Effective Date.--The amendment made by this section
shall apply to proceedings commenced after the date of the
enactment of this Act.
SEC. 1454. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT STATUS.
(a) In General.--Subchapter B of chapter 76 (relating to
proceedings by taxpayers and third parties) is amended by
redesignating section 7436 as section 7437 and by inserting
after section 7435 the following new section:
``SEC. 7436. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT STATUS.
``(a) Creation of Remedy.--If, in connection with an audit
of any person, there is an actual controversy involving a
determination by the Secretary as part of an examination that--
``(1) one or more individuals performing services
for such person are employees of such person for
purposes of subtitle C, or
``(2) such person is not entitled to the treatment
under subsection (a) of section 530 of the Revenue Act
of 1978 with respect to such an individual,
upon the filing of an appropriate pleading, the Tax Court may
determine whether such a determination by the Secretary is
correct. Any such redetermination by the Tax Court shall have
the force and effect of a decision of the Tax Court and shall
be reviewable as such.
``(b) Limitations.--
``(1) Petitioner.--A pleading may be filed under
this section only by the person for whom the services
are performed.
``(2) Time for filing action.--If the Secretary
sends by certified or registered mail notice to the
petitioner of a determination by the Secretary
described in subsection (a), no proceeding may be
initiated under this section with respect to such
determination unless the pleading is filed before the
91st day after the date of such mailing.
``(3) No adverse inference from treatment while
action is pending.--If, during the pendency of any
proceeding brought under this section, the petitioner
changes his treatment for employment tax purposes of
any individual whose employment status as an employee
is involved in such proceeding (or of any individual
holding a substantially similar position) to treatment
as an employee, such change shall not be taken into
account in the Tax Court's determination under this
section.
``(c) Small Case Procedures.--
``(1) In general.--At the option of the petitioner,
concurred in by the Tax Court or a division thereof
before the hearing of the case, proceedings under this
section may (notwithstanding the provisions of section
7453) be conducted subject to the rules of evidence,
practice, and procedure applicable under section 7463
if the amount of employment taxes placed in dispute is
$10,000 or less for each calendar quarter involved.
``(2) Finality of decisions.--A decision entered in
any proceeding conducted under this subsection shall
not be reviewed in any other court andshall not be
treated as a precedent for any other case not involving the same
petitioner and the same determinations.
``(3) Certain rules to apply.--Rules similar to the
rules of the last sentence of subsection (a), and
subsections (c), (d), and (e), of section 7463 shall
apply to proceedings conducted under this subsection.
``(d) Special Rules.--
``(1) Restrictions on assessment and collection
pending action, etc.--The principles of subsections
(a), (b), (c), (d), and (f) of section 6213, section
6214(a), section 6215, section 6503(a), section 6512,
and section 7481 shall apply to proceedings brought
under this section in the same manner as if the
Secretary's determination described in subsection (a)
were a notice of deficiency.
``(2) Awarding of costs and certain fees.--Section
7430 shall apply to proceedings brought under this
section.
``(e) Employment Tax.--The term `employment tax' means any
tax imposed by subtitle C.''.
(b) Conforming Amendments.--
(1) Subsection (d) of section 6511 is amended by
adding at the end the following new paragraph:
``(7) Special period of limitation with respect to
self-employment tax in certain cases.--If--
``(A) the claim for credit or refund
relates to an overpayment of the tax imposed by
chapter 2 (relating to the tax on self-
employment income) attributable to Tax Court
determination in a proceeding under section
7436, and
``(B) the allowance of a credit or refund
of such overpayment is otherwise prevented by
the operation of any law or rule of law other
than section 7122 (relating to compromises),
such credit or refund may be allowed or made if claim
therefor is filed on or before the last day of the
second year after the calendar year in which such
determination becomes final.''.
(2) Subsection (a) of section 7421 is amended by
striking ``and 7429(b)'' and inserting ``7429(b), and
7436''.
(3) Sections 7453 and 7481(b) are each amended by
striking ``section 7463'' and inserting ``section
7436(c) or 7463''.
(4) The table of sections for subchapter B of
chapter 76 is amended by striking the last item and
inserting the following:
``Sec. 7436. Proceedings for determination of employment status.
``Sec. 7437. Cross references.''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
Subtitle D--Other Provisions
SEC. 1461. EXTENSION OF DUE DATE OF FIRST QUARTER ESTIMATED TAX PAYMENT
BY PRIVATE FOUNDATIONS.
(a) In General.--Paragraph (3) of section 6655(g) is
amended by adding at the end the following new sentence: ``In
the case of a private foundation, subsection (c)(2) shall be
applied by substituting `May 15' for `April 15'.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply for purposes of determining underpayments of
estimated tax for taxable years beginning after the date of the
enactment of this Act.
SEC. 1462. CLARIFICATION OF AUTHORITY TO WITHHOLD PUERTO RICO INCOME
TAXES FROM SALARIES OF FEDERAL EMPLOYEES.
(a) In General.--Subsection (c) of section 5517 of title 5,
United States Code, is amended by striking ``or territory or
possession'' and inserting ``, territory, possession, or
commonwealth''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on January 1, 1998.
SEC. 1463. CERTAIN NOTICES DISREGARDED UNDER PROVISION INCREASING
INTEREST RATE ON LARGE CORPORATE UNDERPAYMENTS.
(a) General Rule.--Subparagraph (B) of section 6621(c)(2)
(defining applicable date) is amended by adding at the end the
following new clause:
``(iii) Exception for letters or
notices involving small amounts.--For
purposes of this paragraph, any letter
or notice shall be disregarded if the
amount of the deficiency or proposed
deficiency (or the assessment or
proposed assessment) set forth in such
letter or notice is not greater than
$100,000 (determined by not taking into
account any interest, penalties, or
additions to tax).''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply for purposes of determining interest for periods
after December 31, 1997.
TITLE XV--PENSIONS AND EMPLOYEE BENEFITS
Subtitle A--Simplification
SEC. 1501. MATCHING CONTRIBUTIONS OF SELF-EMPLOYED INDIVIDUALS NOT
TREATED AS ELECTIVE EMPLOYER CONTRIBUTIONS.
(a) In General.--Section 402(g) (relating to limitation on
exclusion for elective deferrals) is amended by adding at the
end the following:
``(9) Matching contributions on behalf of self-
employed individuals not treated as elective employer
contributions.--Except as provided in section
401(k)(3)(D)(ii), any matching contribution described
in section 401(m)(4)(A) which is made on behalf of a
self-employed individual (as defined in section 401(c))
shall not be treated as an elective employer
contribution under a qualified cash or deferred
arrangement (as defined in section 401(k)) for purposes
of this title.''.
(b) Conforming Amendment for Simple Retirement Accounts.--
Section 408(p) (relating to simple retirement accounts) is
amended by adding at the end the following:
``(8) Matching contributions on behalf of self-
employed individuals not treated as elective employer
contributions.--Any matching contribution described in
paragraph (2)(A)(iii) which is made on behalf of a
self-employed individual (as defined in section 401(c))
shall not be treated as an elective employer
contribution to a simple retirement account for
purposes of this title.''.
(c) Effective Dates.--
(1) Elective deferrals.--The amendment made by
subsection (a) shall apply to years beginning after
December 31, 1997.
(2) Simple retirement accounts.--The amendment made
by subsection (b) shall apply to years beginning after
December 31, 1996.
SEC. 1502. MODIFICATION OF PROHIBITION OF ASSIGNMENT OR ALIENATION.
(a) Amendment to ERISA.--Section 206(d) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)) is
amended by adding at the end the following:
``(4) Paragraph (1) shall not apply to any offset of a
participant's benefits provided under an employee pension
benefit plan against an amount that the participant is ordered
or required to pay to the plan if--
``(A) the order or requirement to pay arises--
``(i) under a judgment of conviction for a
crime involving such plan,
``(ii) under a civil judgment (including a
consent order or decree) entered by a court in
an action brought in connection with a
violation (or alleged violation) of part 4 of
this subtitle, or
``(iii) pursuant to a settlement agreement
between the Secretary and the participant, or a
settlement agreement between the Pension
Benefit Guaranty Corporation and the
participant, in connection with a violation (or
alleged violation) of part 4 of this subtitle
by a fiduciary or any other person,
``(B) the judgment, order, decree, or settlement
agreement expressly provides for the offset of all or
part of the amount ordered or required to be paid to
the plan against the participant's benefits provided
under the plan, and
``(C) in a case in which the survivor annuity
requirements of section 205 apply with respect to
distributions from the plan to the participant, if the
participant has a spouse at the time at which the
offset is to be made--
``(i) either--
``(I) such spouse has consented in
writing to such offset and such consent
is witnessed by a notary public or
representative of the plan (or it is
established to the satisfaction of a
plan representative that such consent
may not be obtained by reason of
circumstances described in section
205(c)(2)(B)), or
``(II) an election to waive the
right of the spouse to a qualified
joint and survivor annuity or a
qualified preretirement survivor
annuity is in effect in accordance with
the requirements of section 205(c),
``(ii) such spouse is ordered or required
in such judgment, order, decree, or settlement
to pay an amount to the plan in connection with
a violation of part 4 of this subtitle, or
``(iii) in such judgment, order, decree, or
settlement, such spouse retains the right to
receive the survivor annuity under a qualified
joint and survivor annuity provided pursuant to
section 205(a)(1) and under a qualified
preretirement survivor annuity provided
pursuant to section 205(a)(2), determined in
accordance with paragraph (5).
A plan shall not be treated as failing to meet the requirements
of section 205 solely by reason of an offset under this
paragraph.
``(5)(A) The survivor annuity described in paragraph
(4)(C)(iii) shall be determined as if--
``(i) the participant terminated employment on the
date of the offset,
``(ii) there was no offset,
``(iii) the plan permitted commencement of benefits
only on or after normal retirement age,
``(iv) the plan provided only the minimum-required
qualified joint and survivor annuity, and
``(v) the amount of the qualified preretirement
survivor annuity under the plan is equal to the amount
of the survivor annuity payable under the minimum-
required qualified joint and survivor annuity.
``(B) For purposes of this paragraph, the term `minimum-
required qualified joint and survivor annuity' means the
qualified joint and survivor annuity which is the actuarial
equivalent of the participant's accrued benefit (within the
meaning of section 3(23)) and under which the survivor annuity
is 50 percent of the amount of the annuity which is payable
during the joint lives of the participant and the spouse.''.
(b) Amendment to 1986 Code.--Section 401(a)(13) (relating
to assignment and alienation) is amended by adding at the end
the following:
``(C) Special rule for certain judgments
and settlements.--Subparagraph (A) shall not
apply to any offset of a participant's benefits
provided under a plan against an amount that
the participant is ordered or required to pay
to the plan if--
``(i) the order or requirement to
pay arises--
``(I) under a judgment of
conviction for a crime
involving such plan,
``(II) under a civil
judgment (including a consent
order or decree) entered by a
court in an action brought in
connection with a violation (or
alleged violation) of part 4 of
subtitle B of title I of the
Employee Retirement Income
Security Act of 1974, or
``(III) pursuant to a
settlement agreement between
the Secretary of Labor and the
participant, or a settlement
agreement between the Pension
Benefit Guaranty Corporation
and the participant, in
connection with a violation (or
alleged violation) of part 4 of
such subtitle by a fiduciary or
any other person,
``(ii) the judgment, order, decree,
or settlement agreement expressly
provides for the offset of all or part
of the amount ordered or required to be
paid to the plan against the
participant's benefits provided under
the plan, and
``(iii) in a case in which the
survivor annuity requirements of
section 401(a)(11) apply with respect
to distributions from the plan to the
participant, if the participant has a
spouse at the time at which the offset
is to be made--
``(I) either such spouse
has consented in writing to
such offset and such consent is
witnessed by a notary public or
representative of the plan (or
it is established to the
satisfaction of a plan
representative that such
consent may not be obtained by
reason of circumstances
described in section
417(a)(2)(B)), or an election
to waive the right of the
spouse to either a qualified
joint and survivor annuity or a
qualified preretirement
survivor annuity is in effect
in accordance with the
requirements of section 417(a),
``(II) such spouse is
ordered or required in such
judgment, order, decree, or
settlement to pay an amount to
the plan in connection with a
violation of part 4 of such
subtitle, or
``(III) in such judgment,
order, decree, or settlement,
such spouse retains the right
to receive the survivor annuity
under a qualified joint and
survivor annuity provided
pursuant to section
401(a)(11)(A)(i) and under a
qualified preretirement
survivor annuity provided
pursuant to section
401(a)(11)(A)(ii), determined
in accordance with subparagraph
(D).
A plan shall not be treated as failing to meet
the requirements of this subsection, subsection
(k), section 403(b), or section 409(d) solely
by reason of an offset described in this
subparagraph.
``(D) Survivor annuity.--
``(i) In general.--The survivor
annuity described in subparagraph
(C)(iii)(III) shall be determined as
if--
``(I) the participant
terminated employment on the
date of the offset,
``(II) there was no offset,
``(III) the plan permitted
commencement of benefits only
on or after normal retirement
age,
``(IV) the plan provided
only the minimum-required
qualified joint and survivor
annuity, and
``(V) the amount of the
qualified preretirement
survivor annuity under the plan
is equal to the amount of the
survivor annuity payable under
the minimum-required qualified
joint and survivor annuity.
``(ii) Definition.--For purposes of
this subparagraph, the term `minimum-
required qualified joint and survivor
annuity' means the qualified joint and
survivor annuity which is the actuarial
equivalent of the participant's accrued
benefit (within the meaning of section
411(a)(7)) and under which the survivor
annuity is 50 percent of the amount of
the annuity which is payable during the
joint lives of the participant and the
spouse.''.
(c) Effective Date.--The amendments made by this section
shall apply to judgments, orders, and decrees issued, and
settlement agreements entered into, on or after the date of the
enactment of this Act.
SEC. 1503. ELIMINATION OF PAPERWORK BURDENS ON PLANS.
(a) Elimination of Unnecessary Filing Requirements.--
Section 101(b) of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1021(b)) is amended by striking paragraphs
(1), (2), and (3) and by redesignating paragraphs (4) and (5)
as paragraphs (1) and (2), respectively.
(b) Elimination of Plan Description.--
(1) In general.--Section 102(a) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1022(a)) is amended--
(A) by striking paragraph (2), and
(B) by striking ``(a)(1)'' and inserting
``(a)''.
(2) Conforming amendments.--
(A) Section 102(b) of such Act (29 U.S.C.
1022(b)) is amended by striking ``The plan
description and summary plan description shall
contain'' and inserting ``The summary plan
description shall contain''.
(B) The heading for section 102 of such Act
is amended by striking ``plan description
and''.
(c) Furnishing of Reports.--
(1) In general.--Section 104(a)(1) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1024(a)(1)) is amended to read as follows:
``Sec. 104. (a)(1) The administrator of any employee
benefit plan subject to this part shall file with the Secretary
the annual report for a plan year within 210 days after the
close of such year (or within such time as may be required by
regulations promulgated by the Secretary in order to reduce
duplicative filing). The Secretary shall make copies of such
annual reports available for inspection in the public document
room of the Department of Labor.''.
(2) Secretary may request documents.--
(A) In general.--Section 104(a) of such Act
(29 U.S.C. 1024(a)) is amended by adding at the
end the following:
``(6) The administrator of any employee benefit plan
subject to this part shall furnish to the Secretary, upon
request, any documents relating to the employee benefit plan,
including but not limited to, the latest summary plan
description (including any summaries of plan changes not
contained in the summary plan description), and the bargaining
agreement, trust agreement, contract, or other instrument under
which the plan is established or operated.''.
(B) Penalty.--Section 502(c) of such Act
(29 U.S.C. 1132(c)) is amended by redesignating
paragraph (6) as paragraph (7) and by inserting
after paragraph (5) the following:
``(6) If, within 30 days of a request by the Secretary to a
plan administrator for documents under section 104(a)(6), the
plan administrator fails to furnish the material requested to
the Secretary, the Secretary may assess a civil penalty against
the plan administrator of up to $100 a day from the date of
such failure (but in no event in excess of $1,000 per request).
No penalty shall be imposed under this paragraph for any
failure resulting frommatters reasonably beyond the control of
the plan administrator.''.
(d) Conforming Amendments.--
(1) Section 104(b)(1) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1024(b)(1)) is
amended by striking ``section 102(a)(1)'' each place it
appears and inserting ``section 102(a)''.
(2) Section 104(b)(2) of such Act (29 U.S.C.
1024(b)(2)) is amended by striking ``the plan
description and'' and inserting ``the latest updated
summary plan description and''.
(3) Section 104(b)(4) of such Act (29 U.S.C.
1024(b)(4)) is amended by striking ``plan
description''.
(4) Section 106(a) of such Act (29 U.S.C. 1026(a))
is amended by striking ``descriptions,''.
(5) Section 107 of such Act (29 U.S.C. 1027) is
amended by striking ``description or''.
(6) Section 108(2)(B) of such Act (29 U.S.C.
1028(2)(B)) is amended by striking ``plan descriptions,
annual reports,'' and inserting ``annual reports''.
(7) Section 502(a)(6) of such Act (29 U.S.C.
1132(a)(6)) is amended by striking ``or (5)'' and
inserting ``(5), or (6)''.
(e) Technical Correction.--Section 1144(c) of the Social
Security Act (42 U.S.C. 1320b-14(c)) is amended by
redesignating paragraph (9) as paragraph (8).
SEC. 1504. MODIFICATION OF 403(B) EXCLUSION ALLOWANCE TO CONFORM TO 415
MODIFICATIONS.
(a) Definition of Compensation.--
(1) In general.--Section 403(b)(3) (defining
includible compensation) is amended by adding at the
end the following: ``Such term includes--
``(A) any elective deferral (as defined in
section 402(g)(3)), and
``(B) any amount which is contributed or
deferred by the employer at the election of the
employee and which is not includible in the
gross income of the employee by reason of
section 125 or 457.''.
(2) Effective date.--The amendment made by this
subsection shall apply to years beginning after
December 31, 1997.
(b) Repeal of Rules in Section 415(e).--The Secretary of
the Treasury shall modify the regulations regardingthe
exclusion allowance under section 403(b)(2) of the Internal Revenue
Code of 1986 to reflect the amendment made by section 1452(a) of the
Small Business Job Protection Act of 1996. Such modification shall take
effect for years beginning after December 31, 1999.
SEC. 1505. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN
NONDISCRIMINATION RULES TO STATE AND LOCAL
GOVERNMENTS.
(a) General Nondiscrimination and Participation Rules.--
(1) Nondiscrimination requirements.--Section
401(a)(5) (relating to qualified pension, profit-
sharing, and stock bonus plans) is amended by adding at
the end the following:
``(G) State and local governmental plans.--
Paragraphs (3) and (4) shall not apply to a
governmental plan (within the meaning of
section 414(d)) maintained by a State or local
government or political subdivision thereof (or
agency or instrumentality thereof).''.
(2) Additional participation requirements.--Section
401(a)(26)(H) (relating to additional participation
requirements) is amended to read as follows:
``(H) Exception for state and local
governmental plans.--This paragraph shall not
apply to a governmental plan (within the
meaning of section 414(d)) maintained by a
State or local government or political
subdivision thereof (or agency or
instrumentality thereof).''.
(3) Minimum participation standards.--Section
410(c)(2) (relating to application of participation
standards to certain plans) is amended to read as
follows:
``(2) A plan described in paragraph (1) shall be
treated as meeting the requirements of this section for
purposes of section 401(a), except that in the case of
a plan described in subparagraph (B), (C), or (D) of
paragraph (1), this paragraph shall apply only if such
plan meets the requirements of section 401(a)(3) (as in
effect on September 1, 1974).''.
(b) Participation and Discrimination Standards for
Qualified Cash or Deferred Arrangements.--Section 401(k)(3)
(relating to application of participation and discrimination
standards) is amended by adding at the end the following:
``(G) A governmental plan (within the
meaning of section 414(d)) maintained by aState
or local government or political subdivision thereof (or agency or
instrumentality thereof) shall be treated as meeting the requirements
of this paragraph.''.
(c) Nondiscrimination Rules for Section 40